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Informist, Friday, Jan. 3, 2025

By Kabir Sharma

MUMBAI – The weighted average call rate rose above the Reserve Bank of India's repo rate of 6.50% on Friday as banks' funding needs rose following the reversal of a four-day variable rate repo operation, dealers said. "Liquidity overall was comfortable, but the maturity of VRR (variable rate repo) took out INR 800 billion, so rates remained on the higher side," a dealer at a state-owned bank said.

The weighted average call rate was 6.54% on Friday as against 6.47% on Thursday. The three-day call rate, meanwhile, ended at 6.24% on Friday as against Thursday's close of 6.45% for one-day loans as demand for funds eased towards the end of the session, dealers said.

The reversal of a four-day variable rate repo operation conducted by the RBI on Monday drained INR 832.38 billion from the banking system on Friday. This also pushed up tri-party repo rates, with the weighted average rate rising to 6.38% from 6.22% Thursday.

Apart from the reversal of the variable rate repo, liquidity conditions have been largely comfortable, with net liquidity injected by the RBI on Thursday declining to INR 674.45 billion from INR 2.06 trillion on Monday.

Upward pressure on money market rates is not seen until outflows on account of excise duty and Goods and Services Tax payments, dealers said. "Excise payments are starting on Tuesday and will suck out a good chunk of liquidity. Until then, rates should remain in check," a dealer at a private bank said. Dealers estimate excise duty outflows to be to the tune of INR 700 billion.

The following are the other highlights:

* Maturity of Treasury bills and coupon payments on government securities led to the inflow of INR 103.71 billion Friday.

* Reversal of funds parked at the Standing Deposit Facility added INR 1.52 trillion to the banking system.

OUTLOOK

* On Saturday, the two-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

6.24%--Friday's close for three-day loans

6.60%--Friday's open for three-day loans

6.45%--Thursday'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 due to demand for funds from bks in early trade

MUMBAI – The interbank call money rate was above the Reserve Bank of India's repo rate of 6.50% on Friday due to demand for funds from banks, dealers said. At 1005 IST, the three-day call rate was at 6.60%, against Thursday's close of 6.45% for one-day loans. 

According to RBI data, the liquidity deficit narrowed to INR 674.45 billion on Thursday against INR 1.05 trillion on Wednesday. The deficit narrowed due to inflows from the government for month-end spending, which added around INR 1.50 trillion-INR 1.60 trillion to the banking system, dealers said. 

"It is difficult to ascertain the complete amount of inflows right now, but it is sure that inflows are more than what was expected," a dealer at a private bank said. "It seems that some capex (capital expenditure) spending has also come into the system apart from the regular inflows." 

These inflows have resulted in a cool off in money market rates. While the weighted average call rate traded slightly above repo rate at 6.57%, the weighted average triparty repo rate was below the repo rate at 6.31%.

This fall in rates has facilitated banks to engage in arbitrage trading as they borrow at a lower rate and park with the central bank at a marginally higher rate, dealers said. "On Thursday, in the second half, the triparty repo rate was trading below the standing deposit facility rate due to which banks borrowed at a cheaper rate," a dealer at a state-owned bank said. "They parked the same funds at standing deposit facility at 6.25% easily earning a spread." 

As per data from RBI, the funds parked under standing deposit facility on Thursday rose to INR 1.52 trillion from INR 1.16 trillion on Wednesday. 

The money market rates are expected to be lower until the outflows for excise duty and goods and services tax payments start next week. The outflows for the same are expected to drain around INR 500 billion from the banking system, dealers said. 

The RBI has infused over INR 2 trillion of liquidity into the banking system through variable rate repo auctions this week. On Friday, the four-day variable rate repo worth INR 832.38 billion will reverse. Despite the reversal, dealers do not expect RBI to conduct another variable repo rate operation as the liquidity and rates are at a comfortable position, dealers said.  

Following are the other highlights:

* The weighted average call rate was 6.57%, against 6.47% on Thursday.

* The weighted average rate for triparty repo was 6.31%, against 6.22% on Thursday.

* Reversal of the standing deposit facility will add INR 1.52 trillion to the banking system, and reversal of the marginal standing facility will remove INR 150 million.

* During the day, the call rate is seen in a range of 6.00-6.65%. (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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