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Informist, Thursday, Dec. 26, 2024

By Kabir Sharma and Vidhushi RajPurohit

MUMBAI – The interbank call money rate ended above the Reserve Bank of India's repo rate of 6.50% on Thursday owing to the demand for funds from banks amidst a liquidity deficit in the banking system, dealers said. The one-day call money rate ended at 6.65%, against 6.00% for two-day loans on Tuesday. Financial markets were shut on Wednesday for Christmas.

The weighted average call rate for the day was between the repo rate and the Marginal Standing Facility rate, at 6.67%. However, the weighted average triparty repo was at 6.44%, down 10 basis points from 6.54% on Tuesday.

According to RBI data, the liquidity deficit widened to INR 2.12 trillion on Wednesday from INR 2.05 trillion on Tuesday. Dealers said call money rates remained firm and above the RBI's repo rate as demand for funds was strong due to the upcoming reversal of four variable rate repo auctions of different tenures conducted earlier by the RBI.

The reversal of these operations on Friday is scheduled to drain liquidity to the tune of INR 2.99 trillion from the banking system. However, dealers said they expect month-end government spending to start from Friday, which may ease liquidity to an extent. Dealers said there are no major outflows lined up for the remainder of the week. 

On Thursday, post-market hours, the RBI announced a 14-day variable rate repo auction for a notified amount of INR 1.50 trillion. The auction is scheduled at 1030-1100 IST on Friday. "The VRR auction and, plus the second tranche of CRR (cash reserve ratio) cut will likely provide some relief to (money market) rates in the next week," a dealer with a private bank said. The second tranche of the cut in cash reserve ratio to 4.00% of the net demand and time liabilities is effective from Saturday. Dealers expect around INR 700 billion to be released from the cut. 

The following are the other highlights:

* The weighted average call rate was 6.67%, against 6.71% on Tuesday.

* The weighted average rate for triparty repo was 6.44%, against 6.54% on Tuesday.

* Reversal of the standing deposit facility added INR 1.08 trillion to the banking system, and reversal of the marginal standing facility reduced INR 94.12 billion.

OUTLOOK

* On Friday, the three-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 6.00-6.80%, dealers said.

CALL RATE

6.65%--Thursday's close for one-day loans

6.70%--Thursday's open for one-day loans

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

BENCHMARK MIBOR (in per cent)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Near RBI's MSF rate as liquidity deficit stays above INR 2 tln

MUMBAI – The interbank call money rate opened at 6.70%, near the Reserve Bank of India's marginal standing facility rate, on Thursday on demand for funds from banks as the liquidity deficit in the banking system remained above the INR 2-trillion mark, dealers said. The one-day call rate opened at 6.70%, against Tuesday's close of 6.00% for two-day loans. 

According to data on the Reserve Bank of India's website, the liquidity deficit was at INR 2.05 trillion on Tuesday, slightly better than INR 2.43 trillion on Monday. Dealers said rates in the call money market may ease a little Thursday, but are expected to shoot up again due to the upcoming reversal of four different variable rate repo auctions conducted earlier by the RBI. "There is a slight improvement in liquidity but the pressure from maturities of four VRRs (variable rate repo auctions), which will reverse tomorrow (Friday), has kept rates tight," a dealer at a state-owned bank said. 

The reversal of four variable rate repo auctions on Friday is expected to drain liquidity to the tune of INR 2.99 trillion from the banking system. However, dealers said they expect month-end government spending to start from Friday, which may ease liquidity to an extent. Dealers said there are no major outflows or inflows lined up for Thursday. 

Funds parked in the standing deposit facility also fell sharply on Tuesday as dealers said they had excess funding needs at the last hour. On Tuesday, banks parked just INR 85.36 billion at the RBI's standing deposit facility, against INR 1.05 trillion parked on Monday. Dealers said that they do not expect the RBI to hold a VRR auction Thursday. "Even though there is deficit, the RBI will see the TREPs rate and decide on a VRR auction. Right now, the rates are moderate as there is no outflow lined up for today (Thursday) and soon inflows will also come, so banks are not borrowing aggressively in the money market," a dealer at another state-owned bank said. 

Following are the other highlights:

* The weighted average call rate was 6.75%, against 6.71% on Tuesday.

* The weighted average rate for triparty repo was 6.46%, against 6.54% on Tuesday.

* Reversal of the standing deposit facility will add INR 85.36 billion to the banking system, and reversal of the marginal standing facility will drain INR 2.02 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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