More Stories

Informist, Wednesday, Jan. 8, 2025

By Siddhi Chauhan

MUMBAI – The weighted average call rate rose close to the Reserve Bank of India's Marginal Standing Facility rate of 6.75% as liquidity deficit in the banking system widened, dealers said. The one-day call rate ended at 6.74% on Wednesday, as against Tuesday's close of 6.25%.

"Banks don't have funds available to fulfil even their daily requirements. Banks are struggling to maintain their cash reserve requirements as the upcoming Friday is a reporting Friday," a dealer at a state-owned bank said. "Outflows for excise duty have also exerted pressure on the rates."

The weighted average call rate was 6.74% on Wednesday, as against 6.73% on Tuesday. The weighted average triparty repo rate, which represents a larger funding market including mutual funds, rose to 6.74% Wednesday from 6.71% Tuesday.

On Tuesday, the net liquidity injected by the RBI--a proxy for systemic liquidity deficit--rose to INR 1.44 trillion from INR 978.26 billion on Monday. Outflows for excise duty and tax deducted at source drained around INR 700 billion from the banking system over the past three days, dealers said.

The prevalent cash crunch and elevated money market rates led market participants to expect a variable rate repo operation from the RBI in the initial half of the day. However, the lack of additional RBI liquidity support caught some market participants by surprise, pushing up the money market rates, dealers said. 

"We are pretty shocked that there was no repo operation today, given the fact that a reversal of more than INR 1.5 trillion is lined up for Friday," a dealer at a private bank said. "There are people who are saying that RBI did not conduct repo operation keeping tomorrow's (Thursday) buyback auction in mind. But this seems unlikely."

Dealers were unsure whether it was the government's buyback of bonds that was the reason behind the absence of a repo operation, as the inflows for the same would enter the system on Friday. The government will buy back five bonds maturing in 2025-26 (Apr-Mar), worth INR 250 billion. Even if the full amount is picked up, the inflow would not be enough to cool money market rates, dealers said. 

With the upcoming reversal of two variable rate repo tenures and the high requirement of funds ahead of reporting Friday, banks expect the RBI to conduct a repo operation on Thursday, dealers said. On Friday, the reversal of two variable repo tenders is scheduled to drain INR 1.78 trillion from the banking system. Banks are hoping for a variable repo rate operation on Thursday of INR 750 billion to INR 1 trillion, dealers said.

The following are the other highlights:

* Reversal of funds parked at the Standing Deposit Facility added INR 666.30 billion to the banking system.

* Reversal of funds borrowed at the Marginal Standing Facility took out INR 246.76 billion from the banking system.

OUTLOOK

* On Thursday, 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

6.74%--Wednesday's close for one-day loans

6.75%--Wednesday's open for one-day loans

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

BENCHMARK MIBOR (in per cent)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Near MSF rate on tax outflows; money market rates to remain up
 

MUMBAI – The interbank call money rate was near the Reserve Bank of India's Marginal Standing Facility rate of 6.75% due to demand for funds from banks in early trade. Widening of the banking system liquidity deficit contributed to the weighted average call rate being at 6.88%, against 6.73% on Tuesday. The weighted average triparty rate was also near the MSF rate, at 6.70%.

At 1022 IST, the one-day call money rate was at 6.70%, against 6.25% at close on Tuesday. On Tuesday, the net liquidity injected by the RBI--a proxy for systemic liquidity conditions--rose to INR 1.44 trillion from INR 978.26 billion on Monday. Liquidity was under pressure due to payment of excise duty and tax deducted at source to the government, which is likely to have drained around INR 700 billion to INR 800 billion out of the system, dealers said. 

A smaller chunk of outflows for the same is expected to keep liquidity under pressure, keeping money market rates elevated, dealers said. "I don't see a cool-off in money market rates any time soon because of excise duty and tax deducted at source outflows," a dealer at a state-owned bank said. "It seems that still amount is left for payment of the same as the rates are not falling from the previous day's level." 

In an attempt to provide respite to money market rates, market participants expect the RBI to conduct a variable rate repo operation during the day. Expectations of the tender's tenure vary from overnight to two days, with an amount of INR 750 billion to INR 1 trillion, dealers said. 

"Seeing the rates and liquidity deficit, it is necessary for RBI to conduct a variable rate repo operation," a dealer at a private bank said. "Either way, they will have to come up with a repo operation because of the reversal of around INR 1.5 trillion on Friday." On Friday, reversal of two variable repo tenders is scheduled to drain out INR 1.78 trillion from the banking system.

Following are the other highlights:
* Reversal of funds parked at the Standing Deposit Facility will add INR 666.30 billion to the banking system, while the reversal of Marginal Standing Facility loans will drain INR 246.76 billion
* Payments for the state bond auction will outweigh inflows for coupon payments, and lead to a net outflow of INR 195.25 billion
* During the day, the call rate is seen in a range of 6.20-6.90%. (Siddhi Chauhan)

End

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

Edited by Ashish Shirke

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

Informist Media Tel +91 (22) 6985-4000 

Send comments to feedback@informistmedia.com

© Informist Media Pvt. Ltd. 2025. All rights reserved.