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Informist, Wednesday, Jan. 1, 2025

By Siddhi Chauhan

MUMBAI – The interbank call money rate ended slightly above the repo rate of 6.50% on Wednesday on demand for funds from banks amid continued deficit liquidity, dealers said. The one-day call rate ended at 6.55% Wednesday as against 6.00% on Tuesday.

According to the latest data, the Reserve Bank of India injected INR 1.32 trillion of liquidity on a net basis on Tuesday, sharply down from INR 2.06 trillion Monday. The liquidity deficit narrowed on the back of the government's usual month-end spending of around INR 1.5 trillion, dealers said.

"Government month-end spending inflows have hit the system. It seems that the deficit will narrow going forward," a dealer at a private bank said. "Rates are also expected to remain on the lower side. Outflows of excise duty and tax deducted at source will exert pressure on liquidity."

The weighted average call rate fell to 6.52% on Wednesday from 6.88% Tuesday with the liquidity conditions easing somewhat. Similarly, the weighted average tri-party repo rate fell below the repo rate to 6.31% from 6.52% on Tuesday.

"The fall in (money market) rates was quite sharp as inflows of around INR 800 billion were seen yesterday (Tuesday)," a dealer at a state-owned bank said. "The rates will remain on the lower side for a few days now as no major outflows are scheduled this week."

During the day, outflows towards payment for Tuesday's auction of state government securities worth INR 247.29 billion took place, although its impact was largely offset by the last tranche of the government's month-end spending, dealers said.

Dealers do not expect the liquidity deficit to widen until next week's payments for excise duty and tax deducted at source worth around INR 450 billion-INR 500 billion, dealers said.

The following are the other highlights:

* Reversal of funds parked at the Standing Deposit Facility added INR 1.38 trillion to the banking system.
 

OUTLOOK

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

CALL RATE

6.55%--Wednesday's close for one-day loans

6.50%--Wednesday'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: Above repo rate; government's month-end spending aids liquidity

MUMBAI – The interbank call money rate opened at the Reserve Bank of India's repo rate of 6.50% as banking system liquidity remained in large deficit even after narrowing on Tuesday, dealers said. At 1014 IST, the one-day call rate was at 6.65%, against Tuesday's close of 6.00%. 

According to RBI data, the liquidity deficit narrowed to INR 1.32 trillion on Tuesday from INR 2.06 trillion on Monday. The deficit narrowed on the back of inflows for the government's month-end spending, dealers said. Inflows from the government's month-end spending are expected to add around INR 1.5 trillion, dealers said. 

"Inflows for salaries and pension funds started yesterday (Tuesday). I think around INR 700 billion would have entered the banking system for these inflows," a dealer at a state-owned bank said. "It has also helped in the cooling of money market rates which continue to trade at these levels for some time."
 

These inflows allowed banks to park more funds under the standing deposit facility with the central bank, dealers said. According to the RBI, on Tuesday, banks increased the funds parked with RBI under the standing deposit facility to INR 1.38 trillion from INR 999.13 billion on Monday. 

During the day, outflows towards payment for state government security auction of INR 247.29 billion are scheduled. However, the impact of these outflows is expected to be largely offset by inflows for the government's month-end spending, which are also scheduled for the day, dealers said. Apart from that, no other inflows or outflows are scheduled for the day, dealers said. 

Following are the other highlights:

* The weighted average call rate was 6.62%, against 6.88% on Tuesday.

* The weighted average rate for triparty repo was 6.43%, against 6.52% on Tuesday.

* Reversal of the standing deposit facility will add INR 1.38 trillion to the banking system, and reversal of the marginal standing facility will remove INR 2.98 billion.

* During the day, the call rate is seen in a range of 6.00-6.75%.

End

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

Edited by Saji George Titus

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