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Informist, Tuesday, Jan. 7, 2025

By Vidhushi RajPurohit

MUMBAI – The interbank call money rate ended at the Reserve Bank of India's Standing Deposit Facility rate of 6.25% on Tuesday as most banks met their funding needs early in the trading session, dealers said. Outflows on account of tax payments and the RBI's dollar sales in the foreign exchange market to support the Indian rupee against the US dollar exerted pressure on money market rates in early trade, with the call rate opening at 6.90%.

The one-day call money rate ended at 6.25% as against 5.75% Monday. At the day's close, the weighted average call rate was 6.73%, up from 6.65% Monday. Similarly, the weighted average triparty repo rate rose to 6.71% from 6.55% Monday.

"The (money market) rates were high as the inflows from month-end spending, which eased liquidity, again left the system as tax outflows," a dealer at a state-owned bank said. On Monday, the net liquidity injected by the RBI--a proxy for systemic liquidity conditions--rose to INR 978.26 billion from an over-three-week low of INR 289.58 billion on Sunday. Dealers estimate around INR 500 billion exited the banking system on Tuesday in the form of tax deducted at source and excise duty payments.

To ease money market rates, the RBI conducted a three-day variable rate repo auction for INR 500 billion. Banks bid aggressively at the auction, resulting in a cut-off rate of 6.54% and weighted average rate of 6.57%.

Interbank borrowing rates did not ease much after the auction as traders said the amount offered by the central bank was too little to bridge the liquidity deficit. Banks also needed funds to maintain their reserve requirements with the RBI. On Monday, they had maintained INR 9.00 trillion with the RBI as against the average daily requirement of INR 9.18 trillion for the current fortnight that ends on Friday. So far in the current fortnight, banks have maintained an average cash balance of INR 9.26 trillion.

The following are the other highlights:

* Reversal of funds parked at the Standing Deposit Facility added INR 542.74 billion to the banking system.

* Reversal of funds borrowed at the Marginal Standing Facility took out INR 158.60 billion from the banking system.

OUTLOOK

* On Wednesday, the one-day call rate may open above the repo rate of 6.50% on 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

6.25%--Tuesday's close for one-day loans

6.90%--Tuesday's open for one-day loans

5.75%--Monday's close for one-day loans

BENCHMARK MIBOR (in per cent)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Above MSF rate as tax outflows drain liquidity

NEW DELHI – The interbank call money rate was above the Reserve Bank of India's Marginal Standing Facility rate of 6.75% due to demand for funds from banks in early trade. The decrease in the central bank's liquidity support, through variable rate repo operations, also pushed up interbank rates as the liquidity deficit widened, dealers said.

At 1020 IST, the one-day call money rate was at 6.90%, against 5.75% at close on Monday. After liquidity conditions in the banking system became more comfortable over the past week, the net liquidity injected by the RBI on Monday rose to INR 978.26 billion from an over three-week low of INR 289.58 billion on Sunday.

Liquidity drained out of the banking system due to the payments for excise duty and tax-deducted-at-source to the government, which totalled about INR 600 billion on Monday, dealers said. Around INR 100 billion may also make its way out of the system on this account, they said. On Monday, the RBI had announced a three-day, INR 500-billion variable rate repo operation for 1000-1030 IST on Tuesday.

"There is only one 14-day VRR outstanding, and the one today (Tuesday) is also only INR 500 billion," a dealer at a state-owned bank said. "So the RBI seems to have prepared for this, but before the VRR (auction) there was a drastic need for funds."

A sign of the stress for funding was seen in the triparty repo market, which includes mutual funds. The weighted average triparty repo rate was 6.68%, against 6.55% on Monday. Dealers expect interbank rates to cool after the VRR auction, but some banks said they may have to resort to the Marginal Standing Facility or borrow heavily from the triparty repo market if the RBI does not conduct another fine-tuning operation to inject liquidity on Tuesday. 

The following are the other highlights:
* Reversal of funds parked at the Standing Deposit Facility will add INR 542.74 billion to the banking system, while the reversal of the Marginal Standing Facility loans will drain INR 158.60 billion
* Inflow of INR 3.98 billion as coupon on state bonds will enter the banking system
* During the day, the call rate is seen in a range of 6.20-6.90%. (Aaryan Khanna)

End

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

Edited by Ashish Shirke

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