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Informist, Monday, Jan. 13, 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% on Monday due to high demand for funds from banks because of tight liquidity conditions, dealers said. The one-day call money rate ended at 5.90%, against 6.70% on Friday for three-day loans.

The weighted average call rate was 6.81%, as against 6.88% on Friday. The weighted average triparty repo rate, which represents a larger funding market with mutual funds as active lenders, fell sharply to 6.49% from 6.73% on Friday. The fall in the weighted average triparty repo rate was attributed to the infusion of funds through variable rate repo operation conducted by the central bank during the day, dealers said. 

"We have seen quite a bit of relief in the TREPS (triparty repo rate) after the variable rate repo operation was conducted," a dealer at a state-owned. "Before the operation, the rates were trading near the Marginal Standing Facility. Now it is trading near the repo rate. However, this fall in rates is temporary, it won't last for a longer duration as outflows for advance tax will start from Wednesday." 

At 1030-1100 IST, the RBI conducted a four-day variable rate repo operation for a notified amount of INR 500 billion. The auction was oversubscribed with the central bank receiving bids for INR 861.55 billion out of which INR 500.08 billion were accepted at a cut-off rate of 6.52%. The central bank conducted the auction in order to ease the tight liquidity conditions leading to high money market rates, dealers said.

On Sunday, the net liquidity injected by the RBI--a proxy for systemic liquidity conditions--was INR 2.21 trillion against INR 2.24 trillion on Saturday. Net liquidity injected by the central bank on Friday was INR 2.25 trillion, as per RBI data.

In the coming days, liquidity is expected to remain under pressure due to outflows of goods and service tax, which are expected to begin this week, dealers said. Interventions from the central bank on the foreign exchange side are also expected to weigh on the systemic liquidity, dealers said. 

The following are the other highlights:

* Reversal of funds parked at the Standing Deposit Facility added INR 537.34 billion to the banking system.

* Reversal of funds borrowed at the Marginal Standing Facility took out INR 58.82 billion from the banking system.

OUTLOOK

* On Tuesday, 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

5.90%--Monday's close for one-day loans

7.00%--Monday's open for one-day loans

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

BENCHMARK MIBOR (in per cent)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Above MSF rate as deficit widens, rates to remain under pressure

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 1017 IST, the one-day call money rate was at 7.00%, against 6.70% for three-day loans at Friday's close. On Friday, the net liquidity injected by the RBI--a proxy for systemic liquidity conditions--rose to INR 2.25 trillion from INR 2.01 trillion on Thursday.

The weighted average call rate rose further to 7.00% on Monday from 6.88% on Friday. Meanwhile, the weighted average triparty repo rate was unchanged from the previous day's level of 6.73%. Money market rates remained under pressure as the liquidity deficit widened further on Friday, dealers said.

The central bank announced a four-day variable rate repo operation which will be conducted at 1030-1100 IST for a notified amount of INR 500 billion. This was widely expected by market participants as money market rates were close to the Marginal Standing Facility rate of 6.75%.  

Market participants were divided on the cause of the widening liquidity deficit. Some said liquidity remained under pressure as some banks that were running behind the required cash balance met the same on the reporting Friday. 

As Jan. 10 was a reporting Friday, banks increased the cash balances maintained with the RBI to INR 9.37 trillion from INR 8.97 trillion on Thursday, 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 ended Jan. 10, banks were supposed to maintain an average cash balance of INR 9.18 trillion with the RBI.

A few market participants said likely dollar sales by RBI were the main reason behind the widening of liquidity deficit. "Yes, on Friday, there was a lot of pressure on liquidity but dollar sales could be the main reason," a dealer at a state-owned bank said. "I feel this because even after two variable rate operations conducted by RBI, the rates remained elevated. If you see, the borrowing through MSF was also quite high." 

Following are the other highlights:
* Reversal of funds parked at the Standing Deposit Facility will add INR 156.15 billion to the banking system, while reversal of Marginal Standing Facility loans will drain INR 4.43 billion, according to Friday's data 
* 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 Ashish Shirke

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