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Informist, Thursday, Jan. 16, 2025

By Siddhi Chauhan

MUMBAI – The weighted average call rate remained near the Reserve Bank of India's repo rate of 6.50% on Thursday despite a large shortfall of liquidity in the banking system as the central bank's assurance of providing funds through repo auctions kept rates anchored, dealers said. 

Late Wednesday, the RBI said it would hold variable rate repo auctions on every working day starting Thursday "until further notice". The central bank conducted an overnight variable rate repo operation for a notified amount of INR 500 billion on Thursday, and will hold a three-day VRR auction for the same amount on Friday.

While the one-day call money rate ended at 5.75% against 6.10% on Wednesday, the weighted average call rate was at 6.55% against 6.45% on Wednesday.

The weighted average rate in triparty repo, which represents a larger funding market with mutual funds as active lenders, was at 6.41 against 6.37 on Wednesday. After cooling off slightly, the weighted average call rate rose as banks did not aggressively partake in the variable rate repo operation which was conducted during the day, dealers said. 

"Banks did not participate aggressively in the overnight rate operation because they were getting funds from the triparty market at a much cheaper rate," a dealer at a state-owned bank said. "So, in order to fulfil their demand, they must have borrowed in from the market resulting in a slight rise, but the market is not worried about this rise." At 1000-1030 IST, the RBI conducted an overnight variable rate repo auction of INR 500 billion which received bids worth INR 307.60 billion. 

The market participants were not concerned about the increase in money market rates as no significant outflows are scheduled for this week, dealers said. The next outflows that can exert pressure on the banking system liquidity will be goods and services tax outflows which will start from next week.

These outflows are expected to drain around INR 1.5 trillion to 1.8 trillion from the banking system, dealers said. On Wednesday, the net liquidity injected by the RBI--a proxy for systemic liquidity conditions--rose to INR 2.22 trillion from INR 2.09 trillion on Tuesday, as per data from RBI.

The following are the other highlights:

* Reversal of funds parked at the Standing Deposit Facility added INR 664.09 billion to the banking system.

* Scheduled net inflows of INR 106.89 billion added to liquidity due to redemption of the 6.89%, 2025 gilt

* Inflows of INR 130.50 billion entered the system for redemption of state government security.

OUTLOOK

* On Friday, the thee-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.

* Reversal of overnight variable rate repo tender to drain INR 307.60 billion from liquidity.
* During the day, the call rate is seen in a range of 6.00-6.80%, dealers said.

CALL RATE

5.75%--Thursday's close for one-day loans

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

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

BENCHMARK MIBOR (in per cent)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Above RBI's repo rate as deficit widens; VRR auction eyed

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 0945 IST, the one-day call money rate was at 6.65%, against 6.10% at close on Wednesday.

The weighted average call rate was at 6.63% on Thursday, against 6.49% at 0930 IST on Wednesday. Meanwhile, the weighted average triparty repo rate was at 6.42%, against 6.28% at the same time on Wednesday. 

Money market rates are expected to see some respite after the RBI announced it would conduct variable rate repo auctions daily. At 1000-1030 IST, the overnight variable rate repo auction of INR 500 billion is expected to be undersubscribed, dealers said. The number of bids varies from INR 200 billion to INR 350 billion, with the central bank likely to set the cut-off at 6.51%, money market dealers said. Standalone primary dealers will also be permitted to participate at the auction. 

On Wednesday, the net liquidity injected by the RBI--a proxy for systemic liquidity conditions--rose to INR 2.22 trillion from INR 2.09 trillion on Tuesday, as per data from RBI. The deficit widened due to outflows of INR 179.19 billion as payment for Tuesday's auction of state government bonds.

RBI on Wednesday announced it would hold variable rate repo auctions on every working day starting Thursday "until further notice". However, the RBI said the size of the auctions would be decided based on its assessment of liquidity conditions and would be announced separately.

This measure by the RBI is focused more on the money market rates front, dealers said. "This is a good measure to control the overnight rates, earlier MIBOR, which used to be at 6.70% levels, will now cool off to 6.60%," a dealer at a state-owned bank said. 

Following are the other highlights:

* Reversal of funds parked at the Standing Deposit Facility will add INR 664.09 billion to the banking system.

* Scheduled net inflows of INR 106.89 billion may add to liquidity due to redemption of the 6.89%, 2025 gilt

* During the day, the call rate is seen in a range of 6.00-6.90%. 

End

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

Edited by Akul Nishant Akhoury

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