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Informist, Monday, Jan. 20, 2025

By Kabir Sharma

MUMBAI – The interbank call money rate ended above the Reserve Bank of India's repo rate of 6.50% on Monday as demand for funds remained firm due to outflows on account of goods and services tax payments, dealers said. On Monday, the one-day call rate ended at 6.60% as against 5.75% for two-day loans on Saturday, while the weighted average call rate was 6.63%, up from 6.12% Saturday.

Despite the GST outflows, demand for funds eased slightly during the course of the day as the RBI infused liquidity through its daily variable rate repo operation to the tune of INR 757.72 billion. The weighted average call rate was 6.75% at the start of trade Monday.

"Rates have fallen from the morning because banks had fulfilled their fund needs even before VRR. Volume in triparty repo market had crossed INR 2 trillion ahead of outflows," a dealer at a state-owned bank said. "The VRR added funds into banking system resulting in cooling off in rates. Probably, some buy/sell (swaps by RBI) in foreign exchange market also provided relief." Volume in the triparty repo market on Monday was INR 4.00 trillion.

Dealers also said participation from banks was low in the variable rate repo auction--which was for a notified amount of INR 1.25 trillion--as the triparty rate was trending below the repo rate, making it an attractive borrowing avenue. The weighted average triparty repo rate was 6.41% on Monday.

According to latest data, the net liquidity injected by the RBI--a proxy for systemic liquidity conditions--was INR 1.94 trillion on Sunday.

Following are the other highlights:

* Reversal of funds parked at the Standing Deposit Facility added INR 195.44 billion to the banking system.

OUTLOOK

* On Tuesday, the one-day call money rate may open above the RBI's repo rate of 6.50% due to demand for funds from banks early in the day to meet their reserve requirements.

* During the day, the call rate is seen in a range of 6.00-6.70%, dealers said.

* The RBI will conduct an overnight, variable rate repo auction for INR 1.50 trillion at 1000-1030 IST.

CALL RATE

6.60%--Monday's close for one-day loans

6.75%--Monday's open for one-day loans

5.75%--Saturday's close for two-day loans

India Call: Above repo rate; liquidity set to worsen due to GST outflows

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 0942 IST, the one-day call money rate was at 6.60%, against 5.75% for two-day loans on Saturday.

The weighted average call rate was at 6.75% on Monday, against 6.64% at 0930 IST on Friday. Meanwhile, the weighted average triparty repo rate was at 6.50%, against 6.49% at the same time on Friday. 

On Friday, the net liquidity injected by the RBI--a proxy for systemic liquidity conditions--fell to INR 1.96 trillion against INR 2.36 trillion on Thursday, as per data from RBI. Dealers were unsure of the cause of the decline in the liquidity deficit as no significant inflows were scheduled for Friday, dealers said. Some market participants attributed the likely reduction in liquidity deficit to dollar/rupee buy/sell swaps conducted by the RBI last week. 

On Monday, outflows worth INR 360 billion are scheduled as payment for government securities auctioned on Friday. Apart from these, around INR 500 billion is expected to be drained from the banking system due to goods and services tax payments, dealers said. In total, the outflows for the same are expected to drain around INR 1.5 trillion to INR 1.8 trillion from the banking system this week, dealers said. 

In light of these outflows, the central bank will conduct a variable repo rate operation at 1000-1030 IST for a notified amount of INR 1.25 trillion on Monday. Market participants expect the central bank to receive bids in the range of INR 200 billion to INR 1.25 trillion. The central bank is expected to set a cut-off of 6.51%, dealers said. 

"Making a note of an outflow-heavy day, the central bank has given a higher quantum for rate repo operation this time," a dealer at a state-owned bank said. "This will ease pressure on money market rates, leading the weighted average triparty repo rate to trade not more than 6.55% and the weighted average call rate to be around 6.75% during the day." 

Following are the other highlights:

* Reversal of funds parked at the Standing Deposit Facility will add INR 73.41 billion to the banking system according to latest data.

* 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 Ashish Shirke

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