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Informist, Tuesday, Dec. 24, 2024

By Siddhi Chauhan

MUMBAI – The interbank call money rate ended below the Reserve Bank of India's standing deposit facility rate of 6.25% Tuesday as demand for funds eased towards the end, with most banks having met their reserve requirements early in the day, dealers said. The two-day call money rate ended at 6.00%, against 6.25% for one-day loans on Monday. 

According to data on the RBI's website, the liquidity deficit in the banking system widened to INR 2.43 trillion on Monday, the highest level seen since May 21, from INR 1.76 trillion on Friday. The liquidity deficit rose due to outflows on account of goods and services tax payments, which drained INR 1.5 trillion-1.75 trillion from the banking system since last week, dealers said. 

The liquidity deficit is expected to ease going forward due to inflows from month-end spending by the government, which may restore around INR 1.5 trillion to the banking system, dealers said.

"Usually (government month-end spending) it starts after 25 of every month, but because tomorrow (Wednesday) is a holiday and there are very few working days left, the inflows must have started today (Tuesday)," a dealer at a state-owned bank said. Financial markets are shut on Wednesday for Christmas. 

The three-day variable rate repo by the central bank and the inflows for government month-end spending are likely to have eased the pressure on money market rates, dealers said. At the three-day variable rate repo operation on Tuesday for a notified amount of INR 750.00 billion, the central bank accepted all the bids worth INR 379.53 billion at a cut-off of 6.51%.  

Apart from these inflows, there were no other significant inflows or outflows during the day, dealers said. On Thursday, outflows for payment of state government securities worth INR 306.00 billion are expected to weigh on banking system liquidity, dealers said.
 

The following are the other highlights:

* The weighted average call rate was 6.71%, against 6.74% on Monday.

* The weighted average rate for triparty repo was 6.54%, against 6.61% on Monday.

* Reversal of the standing deposit facility added INR 1.05 billion to the banking system, and reversal of the marginal standing facility drained INR 2.58 billion.

OUTLOOK

* Financial markets are shut on Wednesday for Christmas. On Thursday, the one-day call money rate may open above the repo rate of 6.50% due to the demand for funds from banks.
* During the day, the call rate is seen in a range of 6.00-6.75%, dealers said.

CALL RATE

6.00%--Tuesday's close for two-day loans

6.85%--Tuesday's open for two-day loans

6.25%--Monday's close for one-day loans

BENCHMARK MIBOR (in per cent)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Above RBI's MSF rate as liquidity deficit crosses INR 2-tln mark

MUMBAI – The liquidity deficit in the banking system widened to its highest level since May. 21, leading to the interbank call money rate opening at 6.85%, 10 basis points above the Reserve Bank of India's marginal standing facility rate, dealers said. "The impact of GST outflows is visible today, it has sucked out around INR 1.60 trillion-INR 1.70 trillion from the system," a dealer at a state-owned bank said. The two-day call rate opened at 6.85%, against Monday's close of 6.25% for one-day loans.

According to data on the RBI's website, the liquidity deficit widened to INR 2.43 trillion on Monday from INR 1.76 trillion on Friday. The liquidity deficit rose to the highest level seen since May. 21 due to outflows for goods and services tax, which drained INR 1.5 trillion-1.75 trillion from the banking system, dealers said. 

A section of the market remained unsure about the cause of the high jump in liquidity deficit. "Not sure what led to such a significant rise in deficit, probably the impact of the goods and services tax outflows is being reflected in Monday's data," a dealer at a state-owned bank said. "The outflows that were already accounted for on Monday were the payment of gilts auction." On Monday, outflows of INR 290 billion for payment for a government security auction held on Friday weighed on banking system liquidity, dealers said.

However, funds parked in the standing deposit facility rose sharply on Monday as dealers said they had some excess funds after the RBI conducted two variable rate repo operations. On Monday, banks parked INR 1.05 trillion at the RBI's standing deposit facility, against INR 84.67 billion parked on Friday. 

During the day, reversal of the overnight variable repo operation is expected to drain INR 750.06 billion from the banking system. The repo operation was conducted by the RBI on Monday. At the auction, the central bank set the cut-off rate at 6.53%. It received bids worth INR 1.12 trillion.

Following are the other highlights:

* The weighted average call rate was 6.85%, against 6.74% on Monday.

* The weighted average rate for triparty repo was 6.64%, against 6.61% on Monday.

* Reversal of the standing deposit facility will add INR 1.05 billion to the banking system, and reversal of the marginal standing facility will drain INR 2.58 billion.

* During the day, the call rate is seen in a range of 6.00-6.95%. (Kabir Sharma)

End

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Edited by Saji George Titus

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