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Informist, Friday, Jan. 17, 2025

By Siddhi Chauhan 

MUMBAI – The weighted average call rate was below the Reserve Bank of India's repo rate as the central bank conducted dollar/rupee buy/sell swap operation in the foreign exchange market, dealers said. The three-day call money rate ended at 6.45% against 5.75% on Thursday for one-day loans. 

In an attempt to support the depreciating Indian rupee, the RBI conducts dollar sales in the spot market which can lead to a fall in banking system liquidity. In order to offset this impact, the central bank likely conducted a dollar/rupee buy/sell swap. "The money market rates cooled during the day after RBI conducted a buy/sell swap operation for INR 100 billion," a dealer at a state-owned bank said. 

The weighted average call rate was at 6.58% against 6.55% on Thursday. The weighted average triparty repo rate, which represents a larger funding market with mutual funds as active lenders, was at 6.42% against 6.41% on Thursday.

Until the beginning of goods and service tax outflows, which are expected to drain INR 1.5 trillion to INR 1.8 trillion, the money market rates are expected to remain within comfortable levels, dealers said. "Weighted average triparty repo rates are expected to remain within the comfortable level of 6.55% to 6.60% due to overnight operation conducted by RBI." a dealer at a private bank said. "Weighted average call rate are expected to be around 6.65 to 6.70%." 

Since Thursday, the RBI has been conducting daily repo operations to stabilise market rates which involves the participation of primary dealers. At these auctions, most of the amount was mopped up by primary dealers with bank's participation being quite limited, 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.

On Thursday, the central bank received only INR 307.60 billion bids against the notified amount of INR 500 billion. Similarly, on Friday's three-day variable rate operation, INR 334.67 billion bids were received against INR 500 billion. This was despite the reversal of two-rate operations which drained around INR 807.68 billion from the banking system.

"Despite the amount that is said to be reversed on account of two repo operations, we still have funds with us because of the 14-day repo operation," a dealer at a state-owned bank said. "In case of need, we can get funds at a comparatively cheaper rate through TREPS (triparty repo rate). With this being said, we don't really had a large chunk of outflows this week, which is also helping us." The availability of overnight funds with banks is expected to deteriorate once the outflows for goods and service tax starts, dealers said. 

The following are the other highlights:

* Reversal of funds parked at the Marginal Standing Facility drained INR 11.38 billion to the banking system

* Reversal of funds parked at the Standing Deposit Facility added INR 845.06 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

* Except variable rate repo operations, total net inflows of INR 131.59 billion due to coupon payments and redemption of T-bills to hit the banking system.

OUTLOOK

* On Saturday, the two-day call money rate may open below the repo rate of 6.50% due to low demand for funds as banks have already met regulatory requirements.
* As is usually the case on Saturdays, volumes are expected to be low.
* During the day, the call rate is seen in a range of 6.00-6.60%, dealers said.

CALL RATE

6.45%--Friday's close for three-day loans

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

5.75%--Thursday'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 1018 IST, the one-day call money rate was at 6.55%, against 5.75% at the close on Thursday.

The weighted average call rate was at 6.65% on Friday, against 6.60% at 0930 IST on Thursday. Meanwhile, the weighted average triparty repo rate was at 6.49%, against 6.38% at the same time on Thursday. 

Money market rates remained at a higher level as banks preferred not to participate aggressively in the overnight rate repo operation conducted on Thursday as they were able to borrow funds at a cheaper rate in the money markets, dealers said. Moreover, the surety that there would be a variable rate repo auction on Friday also led to comfortable funding needs. 

The same fate is expected to be seen for the three-day variable rate repo operation, which was conducted at 1000-1030 IST, dealers said. Most market participants expect the auction to be undersubscribed with the number of bids falling as low as INR 100 billion. The central bank is expected to set a cut-off of 6.51%. 

However, a few banks expect the auction to see good demand as the reversal of two-rate operations is expected to drain around INR 807.68 billion from the banking system. On Thursday, the net liquidity injected by the RBI--a proxy for systemic liquidity conditions--rose to INR 2.36 trillion against INR 2.22 trillion on Wednesday, as per data from RBI. 

Following are the other highlights:

* Reversal of Marginal Standing Facility loans will drain INR 11.38 billion

* Reversal of funds parked at the Standing Deposit Facility will add INR 845.06 billion to the banking system.

* Except variable rate repo operations, total net inflows of INR 131.59 billion due to coupon payments and redemption of T-bills to hit 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 Deepshikha Bhardwaj

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