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Informist, Monday, Dec. 30, 2024

By Siddhi Chauhan

MUMBAI – The interbank call money rate ended below the Standing Deposit Facility rate of 6.25% on Monday as demand for funds from banks eased towards the end of the day, dealers said. The one-day call money rate ended at 6.00% on Monday as against 6.80% for three-day loans on Friday. The weighted average call remained near the Marginal Standing Facility rate at 6.74% on Monday, marginally lower than 6.77% on Friday, indicating continuing pressure on liquidity.

The Reserve Bank of India injected INR 1.83 trillion of liquidity on Sunday, largely unchanged from the sum it had provided over the previous few days as the systemic liquidity deficit was little changed despite the addition of around INR 600 billion following the implementation of the second of the two-step reduction in the Cash Reserve Ratio on Saturday, announced by the RBI earlier this month on Dec. 6. The CRR now stands at the pre-pandemic level of 4.00% of banks' net demand and time liabilities.

According to dealers, the CRR cut is not easing liquidity conditions on account of it being the end of the quarter, when credit disbursements are higher. "Many banks, including ours, don't have enough funds and, in order to finance that, we are using TREPS (tri-party repo)," a dealer at a state-owned bank said. "This could be the reason why no inflow is being reflected, as it is being used for disbursements by many banks."

While announcing the two-step, 50-basis-point reduction in the CRR on Dec. 6, the RBI had said it would release INR 1.16 trillion of liquidity in the banking system. However, the central bank had also warned that systemic liquidity may tighten in the coming months due to tax outflows, increase in currency in circulation, and volatility in capital flows.

According to dealers, what's left of the government's month-end spending should aid liquidity conditions. "I think we might see a slight ease in liquidity conditions as salaries and pension funds will begin tomorrow (Tuesday). If you see, this is why volume in the tri-party repo rate market is also low compared to other days," a dealer at a private bank said.

During the day, money market rates were trading near the Marginal Standing Facility rate of 6.75%. Some dealers also attributed the elevated borrowing rates to traders engaging in arbitrage trading. "Overnight (dollar/rupee overnight swap) rates in the foreign exchange market were quite high today (Monday). So many traders were doing arbitrage trading," a dealer at another state-owned bank said. "They were borrowing in TREPS and lending in forex."

The following are the other highlights:

* The weighted average rate for tri-party repo was 6.70% as against 6.75% on Friday.

* Banks borrowed INR 832.38 billion at a cut-off rate of 6.51% at RBI's four-day variable rate repo auction for INR 1 trillion.

* Payment for Friday's gilt auction of INR 320 billion was made on Monday.

* Reversal of funds parked at the Standing Deposit Facility added INR 505.76 billion to the banking system on Monday, while the reversal of money borrowed via the Marginal Standing Facility saw the exit of INR 164.60 billion.

OUTLOOK

* On Tuesday, 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 6.00-6.80%, dealers said.

CALL RATE

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

6.85%--Monday's open for one-day loans

6.80%--Friday's close for three-day loans

BENCHMARK MIBOR (in per cent)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Above MSF rate as liquidity remains in deficit; inflows may aid
 

MUMBAI – The interbank call money rate opened above the Reserve Bank of India's marginal standing facility rate of 6.75% as banking system liquidity remains in deficit, dealers said. At 1020 IST, the one-day call rate was at 6.90%, against Friday's close of 6.80% for three-day loans. 

According to Reserve Bank of India data, the liquidity deficit was at INR 1.91 trillion on Friday against INR 1.89 trillion on Thursday. The banking system's liquidity was little changed as the inflows for government month-end spending were likely offset by banks extending loans near the quarter-end to garnish their balance sheets, dealers said.

"Seeing the recent data, it seems that inflows for month-end spending were not too huge, or it was offset by credit outflows," a dealer at a state-owned bank said.

Demand for credit is expected to drain around INR 1 trillion from the banking system over a period of three to four days, which started Friday, dealers said. Meanwhile, inflows for government month-end spending are expected to add around INR 1.5 trillion to the banking system.

Market participants widely expect the money market rates to be on the higher side due to the liquidity crunch, dealers said. "Unless an overnight VRR (variable rate repo) is announced, rates coming down are unlikely," a dealer at a state-owned bank said. "Let's see what measures will RBI resort to today (Monday), because they have already met some requirements by a four-day variable rate repo operation on Friday."

On Friday, RBI conducted a 14-day variable rate repo auction for INR 1.50 trillion. Banks borrowed INR 1.28 trillion at the auction, at a cut-off rate of 6.51%. Banks were not interested in parking funds heavily due to the fortnightly tenure of the operation, dealers said. Later in the day, the central bank conducted a four-day variable repo rate auction for a notified amount of INR 1.25 trillion. At the auction, banks borrowed INR 852.47 billion at a cut-off rate of 6.51%. 

During the day, outflows of INR 320 billion for payment of the government securities auction are scheduled to take place, dealers said. The auction was held on Friday. However, inflows from government spending and the second 25-basis-point cut to the cash reserve ratio of banks is expected to aid banking system liquidity, dealers said. The cut was announced by the RBI earlier this month and brings the cash reserve ratio to 4% of banks' net demand and time liabilities, starting Saturday.

"We are expecting the deficit to be much lower in the data for Saturday and Sunday because around INR 700 billion would have been added into the system due to the cash reserve ratio cut," a dealer at a private bank said.

Following are the other highlights:

* The weighted average call rate was 6.90%, against 6.77% on Friday.

* The weighted average rate for triparty repo was 6.70%, against 6.75% on Friday

* Reversal of the standing deposit facility will add INR 99.85 billion to the banking system, and reversal of the marginal standing facility will drain INR 42.88 billion.

* During the day, the call rate is seen in a range of 6.00-6.90%. (Siddhi Chauhan)

End

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

Edited by Saji George Titus

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