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Informist, Wednesday, Jan. 15, 2025

By Siddhi Chauhan

MUMBAI – The weighted average call rate edged below the Reserve Bank of India's repo rate of 6.50% on Wednesday as banks' demand for funds eased due to the central bank's liquidity fine-tuning operations since Friday, dealers said. While the one-day call money rate ended at 6.10% against 6.50% on Tuesday, the weighted average rate cooled to 6.45% from 6.53% Tuesday.

The weighted average rate in triparty repo, which represents a larger funding market with mutual funds as active lenders, was an even lower 6.37%, although slightly up from 6.30% on Tuesday. The weighted average triparty repo rate was close to the Standing Deposit Facility rate of 6.25% in the first half of trade but rose after banks did not participate aggressively in the five-day variable rate repo auction.

The auction, which was for INR 750.00 billion, saw bids totalling only INR 39.80 billion. Dealers said banks' participation at the auction was muted as they had already borrowed INR 2.25 trillion at Friday's 14-day variable rate repo auction. The auction, which saw heavy demand, was followed by a four-day variable rate repo auction on Friday where banks borrowed INR 500.05 billion as well as another four-day operation on Monday where INR 500.08 billion was picked up. According to latest RBI data, the central bank had injected a net INR 2.09 trillion into the banking system on Tuesday, double the sum it had infused at the start of the month.

"There was no pressure in the market from outflows of funds. So even after ignoring the (five-day) repo rate operation, banks did not borrow aggressively at the money market as well," a dealer at a private bank said. "Also, funds (have been) already borrowed from the 14-day and 4-day VRRs (Variable Rate Repo), so that is also something that kept the weighted average rates slightly at ease."

Wednesday saw the exit of INR 179.19 billion as payment for Tuesday's auction of state government bonds.

OUTLOOK

* On Thursday, the one-day call rate may open above the repo rate of 6.50% on demand for funds from banks, with liquidity conditions seen largely unchanged from Wednesday.
* During the day, the call rate is seen in a range of 6.00-6.80%, dealers said.

* Thursday will see a net inflow of INR 106.89 billion into the banking system after taking into account scheduled outflows for Wednesday's Treasury bill auction and inflows from T-bill redemptions, coupon payments, and the maturity of the 6.89% 2025 gilt.

CALL RATE

6.10%--Wednesday's close for one-day loans

6.40%--Wednesday's open for one-day loans

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

BENCHMARK MIBOR (in per cent)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: At RBI's repo rate as deficit narrows; 5-day VRR auction eyed

MUMBAI – The interbank call money rate was at the Reserve Bank of India's repo rate of 6.50% due to demand for funds from banks in early trade. At 0958 IST, the one-day call money rate was at 6.50%, unchanged from Tuesday's close.

The weighted average call rate was at 6.49% on Wednesday, against 6.60% at 0930 IST on Tuesday. Meanwhile, the weighted average triparty repo rate was at 6.28%, against 6.45% at the same time on Tuesday. 

On Tuesday, the net liquidity injected by the RBI--a proxy for systemic liquidity conditions-- fell to INR 2.09 trillion from INR 2.50 trillion from Monday, as per data from RBI. On Tuesday, the deficit likely narrowed due to inflows of INR 130.50 billion for redemption of state government security.

Apart from this, some dealers expect liquidity to have narrowed due to the infusion of liquidity through dollar/rupee buy-sell swaps conducted by RBI in the foreign exchange market on Tuesday, dealers said. The central bank typically conducts such swaps to limit the liquidity strain caused by its spot dollar sales. The swaps conducted by the central bank also resulted in a cool-off in money market rates, dealers said. 

"There was settlement of the RBI's buy/sell swaps yesterday (Tuesday), they were conducting it on Monday as well," a dealer at a state-owned bank said. "I can confirm at least INR 150 billion got added to the system...it could be as high as INR 250 billion."

At 1000-1030 IST, the RBI will conduct a five-day variable rate repo operation for a notified amount of INR 750 billion. Market participants expect the auction to be undersubscribed, with the central bank receiving bids in the range INR 300 billion to INR 500 billion. The RBI is likely expected to set a cut-off rate of 6.51%.    

Following are the other highlights:

* Reversal of funds parked at the Standing Deposit Facility will add INR 774.50 billion to the banking system.
* 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 Akul Nishant Akhoury

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