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Informist, Tuesday, Jan. 14, 2025

By Siddhi Chauhan

MUMBAI – The weighted average call rate eased on Tuesday as overnight borrowing rates across markets cooled off after the Reserve Bank of India conducted dollar/rupee buy-sell swaps in the foreign exchange market, dealers said. The central bank typically conducts such swaps to limit the liquidity strain caused by its spot dollar sales. 

One of the reasons for high overnight rates in recent weeks was the rise in near-term forward premiums. As the cost of obtaining rupees by deploying near-term dollars eased, the effect spilled over to other overnight rates, including the interbank call money rate.

The one-day call money rate ended at 6.50%, against 5.90% on Monday. The weighted average call rate cooled off to 6.53%, as against 6.81% on Monday, and above the RBI's repo rate of 6.50%. The weighted average triparty repo rate, which represents a larger funding market with mutual funds as active lenders, fell sharply to 6.30% from 6.49% on Monday.

Market participants were divided on what led to the cool-off in money market rates. Some considered the cool-off in rates to be a result of liquidity infused into the system through a variable rate repo operation conducted on Monday. However, some market participants refuted this reasoning.  "If you see, the funds maintained under SDF (Standing Deposit Facility) increased in the latest data despite such high deficit, so banks might have thought that there are excess funds at the opening," a dealer at a state-owned bank said, unsure about the reasoning. "So the fall in rates at the opening was justified, but this drastic fall is not really clear to me."

On Monday, the net liquidity injected by the RBI--a proxy for systemic liquidity conditions--rose to INR 2.50 trillion from INR 2.21 trillion on Sunday, as per data from RBI. On Monday, the deficit widened as outflows of INR 220 billion took place for payment of the government security auction held on Friday. Money market rates eased due to the RBI's liquidity operations conducted on Monday, dealers said.

Until the outflows of goods and service tax, the liquidity is expected to remain on similar lines, dealers said. The outflows for the same are expected to drain around INR 1.5 trillion-INR 1.8 trillion from the banking system, dealers said. Dealers expect the outflows to begin from Friday. 

The following are the other highlights:

* Reversal of funds parked at the Standing Deposit Facility added INR 840.42 billion to the banking system.

* Reversal of Marginal Standing Facility loans drained INR 5.39 billion.

* Inflows of INR 130.50 billion entered the system for redemption of state government security.
* Reversal of four-day variable rate repo tender drained INR 500.05 billion from liquidity.

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 6.00-6.90%, dealers said.

CALL RATE

6.50%--Tuesday's close for one-day loans

6.60%--Tuesday's open for one-day loans

5.90%--Monday'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 as deficit widens due to gilt auction outflow

MUMBAI – The interbank call money rate was above the Reserve Bank of India's repo rate of 6.50% due to demand for funds from banks in early trade. At 0947 IST, the one-day call money rate was at 6.60%, against 5.90% at close on Monday.

The weighted average call rate was at 6.60% on Tuesday, against 6.99% at 0930 IST on Monday. Meanwhile, the weighted average triparty repo rate was at 6.42%, against 6.75% at the same time on Monday. 

On Monday, the net liquidity injected by the RBI--a proxy for systemic liquidity conditions--rose to INR 2.50 trillion from INR 2.21 trillion on Sunday, as per data from RBI. On Monday, the deficit widened as outflows of INR 220 billion took place for payment of the government security auction held on Friday. Money market rates eased due to the RBI's liquidity operations conducted on Monday, dealers said.

"If you see, the rates (money market) cooled off in the second half of trade on Monday, indicating availability of funds. This happened due to two reasons: First, because of the rate repo operation conducted by RBI," a dealer at a state-owned bank said. "RBI conducting a buy/sell swap operation in an attempt to offset the impact of dollar sales also added some liquidity." 

On Monday, 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, of which bids worth INR 500.08 billion were accepted at a cut-off rate of 6.52%. 

Following are the other highlights:
* Reversal of Marginal Standing Facility loans will drain INR 5.39 billion

* During the day, inflows of INR 130.50 billion will hit the system for redemption of state government security 
* Reversal of four-day variable rate repo tender to drain INR 500.05 billion from liquidity
* During the day, the call rate is seen in a range of 6.00-6.90%. (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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