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Informist, Friday, Jan. 10, 2025

By Siddhi Chauhan

MUMBAI – The weighted average call rate ended sharply above the Reserve Bank of India's Marginal Standing Facility rate of 6.75% due to high demand for funds from banks rushing to meet reserve requirements on the last day of the reporting fortnight, dealers said. The three-day call rate ended at 6.70% on Friday, against Thursday's close for one-day loans of 6.25%. 

The weighted average call rate was 6.88% on Friday, as against 6.83% on Thursday. The weighted average triparty repo rate, which represents a larger funding market with mutual funds as active lenders, fell marginally to 6.73% on Friday from 6.75% on Thursday due to the two variable rate repo operations conducted by the RBI during the day.

"Rates have been high throughout the day because it is a reporting Friday. Also, quite a huge amount was drained from the system due to the reversal of two repo tenders in the morning," a dealer at a state-owned bank said. "This is the reason why (money market) rates have not cooled off sharply even after two repo operations." On Friday, the reversal of two variable repo tenders drained INR 1.78 trillion from the banking system. 

As per prudential norms, banks are required to maintain a cash reserve ratio with the central bank averaged across the fortnight. In the fortnight ending Friday, banks are supposed to maintain an average cash balance of INR 9.18 trillion with the RBI. On Thursday, banks increased the cash balance maintained with the central bank to INR 8.97 trillion from INR 8.74 trillion on Wednesday, data from the RBI showed. 

Money market rates cooled off slightly as RBI conducted two variable rate repo operations during the day, dealers said. At 1030-1100 IST, RBI conducted a 14-day repo operation for a notified amount of INR 2.25 trillion. The auction received bids worth INR 2.78 trillion, of which INR 2.25 trillion was accepted at a cut-off rate of 6.51%. The reversal of the tender will take place on Jan. 24.

Despite the long duration of the paper, the 14-day variable rate repo auction was oversubscribed. Keeping a note of the excessive demand, the central bank conducted a four-day variable rate repo operation for a notified amount of INR 500 billion, dealers said. The second auction was also oversubscribed with the central bank receiving bids worth INR 744.80, of which INR 500.05 billion was accepted at a cut-off of 6.52%. The reversal of the tender will take place on Tuesday.

On Thursday, the net liquidity injected by the RBI--a proxy for systemic liquidity conditions--rose to INR 2.01 trillion against INR 1.82 trillion on Wednesday. Liquidity remains under pressure due to the central bank's intervention in the foreign exchange market. In order to prevent the rupee from depreciating sharply, the central bank has been conducting dollar sales in the spot market.  

The following are the other highlights:

* Reversal of funds parked at the Standing Deposit Facility added INR 565.81 billion to the banking system.

* Reversal of funds borrowed at the Marginal Standing Facility took out INR 206.39 billion from the banking system.

OUTLOOK

* Money markets are shut Saturday. On Monday, 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 6.00-6.90%, dealers said.

CALL RATE

6.70%--Friday's close for three-day loans

6.90%--Friday's open for three-day loans

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

BENCHMARK MIBOR (in per cent)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Sharply above MSF as deficit increases; 14-day VRR auction eyed

MUMBAI – 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. At 1011 IST, the three-day call money rate was at 7.10%, against 6.25% for one-day loans on Thursday. On Thursday, the net liquidity injected by the RBI--a proxy for systemic liquidity conditions--rose to INR 2.01 trillion against INR 1.82 trillion on Wednesday.

The weighted average call rate was pushed to 7.08% on Friday from 6.83% on Wednesday. The weighted average triparty repo rate was unchanged from Thursday at 6.75%. Money market rates were under pressure as banks struggled to cater to their need for funds on a reporting Friday amid the liquidity deficit, dealers said. 

On Thursday, banks increased the cash balance maintained with the central bank to INR 8.97 trillion from INR 8.74 trillion on Wednesday, data from RBI showed. As per prudential norms, banks are required to maintain a cash reserve ratio with the central bank averaged across the fortnight. In the fortnight ending Friday, banks are supposed to maintain an average cash balance of INR 9.18 trillion with the RBI.

Likely intervention by the RBI in the foreign exchange market has weighed on the banking system liquidity, dealers said. "No outflows were scheduled for yesterday (Thursday), RBI has been conducting dollar sales in the spot market. There is a possibility that the liquidity is getting impacted because of that," a dealer at a state-owned bank said. 

Overnight rates are expected to cool down during the second half of the day as the RBI is conducting a 14-day variable rate repo operation for a notified amount of INR 2.25 trillion at 1000-1030 IST. Despite the liquidity crunch, many market participants do not expect the auction to be fully subscribed due to its tenure, and because they expect fine-tuning operations of shorter tenures to be announced in the future dealers said. 

Following are the other highlights:
* Reversal of funds parked at the Standing Deposit Facility will add INR 565.81 billion to the banking system, while the reversal of Marginal Standing Facility loans will drain INR 206.39 billion
* During the day, the call rate is seen in a range of 6.20-7.20%. (Siddhi Chauhan)

End

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

Edited by Tanima Banerjee

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