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Informist, Tuesday, Dec. 31, 2024

By Kabir Sharma

MUMBAI – The interbank call money rate ended below the Reserve Bank of India's standing deposit facility rate Tuesday as demand for funds eased towards the end of trade, dealers said. The call rate had opened sharply higher at 7.15%--the highest since Mar. 28--on demand to meet quarter-end requirements. This was reflected in the weighted average call rate rising to 6.88% Tuesday from 6.74% Monday, while the one-day call rate ended at 6.00%, the same as on Monday.

Inflows on account of salaries aided banking system liquidity Tuesday, easing liquidity conditions, dealers said. "Money market rates have cooled off sharply because inflows for salary have hit the banking system," a dealer at a state-owned bank said. "I think tomorrow (Wednesday) rates will remain around repo rate because of these inflows."

Earlier, on Monday, the RBI injected INR 2.06 trillion of liquidity on a net basis, up from INR 1.83 trillion Sunday, suggesting that liquidity conditions had tightened further. Monday had also seen payment for Friday's gilt auction worth INR 320 billion, which also weighed on banking system liquidity. Overall, dealers said inflows from the government's month-end expenditure have injected roughly INR 1.50 trillion into the banking system.

To bridge the deficit in liquidity, the RBI Tuesday conducted an overnight variable rate repo auction for INR 500 billion, which was fully subscribed. Dealers said funds from the repo auction and from the inflows helped cool rates in the tri-party repo market as well. The weighted average rate for tri-party repo fell to 6.52% on Tuesday from 6.70% Monday.

The following are the other highlights:

* Banks borrowed INR 500.04 billion at a cut-off rate of 6.51% at the overnight variable rate repo auction for INR 500 billion.

* Reversal of funds parked at the standing deposit facility added INR 999.13 billion to the banking system Tuesday, while the reversal of money borrowed via the marginal standing facility saw the exit of INR 3.85 billion.

OUTLOOK

* On Wednesday, the one-day call money rate may open near the repo rate of 6.50% due to the demand for funds.
* During the day, the call rate is seen in a range of 6.00-6.80%, dealers said.

CALL RATE

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

7.15%--Tuesday's open for one-day loans

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

BENCHMARK MIBOR (in per cent)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

End

Edited by Rajeev Pai

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