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Informist, Tuesday, Jan. 21, 2025

By Vidhushi RajPurohit

MUMBAI – The interbank call money rate ended below the Reserve Bank of India's standing deposit facility rate of 6.25% on Tuesday as demand for funds from banks eased towards the session's close, dealers said. The one-day call rate ended at 5.75% against 6.60% on Monday.

The tax outflows combined with the persisting deficit liquidity in the banking system had pushed up money market rates during the day. The weighted average triparty repo rate rose to 6.58% from 6.41% on Monday and the weighted average call rate was at 6.58%, against 6.63% on Monday. The rates also picked up on account of low subscription at the daily variable rate repo auction, dealers said. The repo auction received bids amounting to INR 719 billion, almost half the notified amount of INR 1.50 trillion. 

"We were expecting the money market rates to ease later in the day after the repo auction, as we saw in the past few days, so many banks avoided borrowing at the auction," a dealer at a state-owned bank said. "However, the rates did not ease and that created a panic in the market which pushed up the (money market) rates."

The good and services tax outflows, which began on Monday, are estimated to drain around INR 1.30 trillion to INR 1.40 trillion from the banking system, with major outflows scheduled for Tuesday, dealers said. On Monday, the net liquidity injected by the RBI--a proxy for systemic liquidity conditions--rose to INR 2.36 trillion against INR 1.94 trillion on Sunday, as per data from the RBI.

Some traders expect the current liquidity deficit to widen further after the tax outflows, but likely buy/sell swaps in the foreign exchange market might support the systemic liquidity, dealers said. The RBI has been selling dollars in the spot market to keep the Indian rupee from falling sharply, which has been draining the systemic liquidity. To mitigate the strain, it has been selling dollars for forward delivery, dealers said. 

The liquidity infusion measure by the RBI in the form of daily variable rate repo auctions has aided the money market rates to ease around the repo rate despite the tight systemic liquidity, dealers said. However, the need for some measure that could infuse durable liquidity into the banking system remains, dealers said.

Following are the other highlights:

* Reversal of funds parked at the Standing Deposit Facility added INR 786.50 billion to the banking system.

OUTLOOK

* On Wednesday, the one-day call money rate may open above the RBI's repo rate of 6.50% due to the 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 1.25 trillion at 1000-1030 IST.

CALL RATE

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

6.65%--Tuesday's open for one-day loans

6.60%--Monday'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 on demand for funds amid GST outflows 

MUMBAI – The interbank call money rate was above the Reserve Bank of India's repo rate of 6.50% on Tuesday due to demand for funds from banks amid outflows on account of goods and services tax payments, dealers said. At 0945 IST, the one-day call money rate was unchanged from the previous day's close of 6.60%.

The weighted average call rate was at 6.61% on Tuesday, against 6.76% at 0930 IST on Monday. Meanwhile, the weighted average triparty repo rate was at 6.50%, unchanged from Monday's weighted average at the same time. 

On Monday, the net liquidity injected by the RBI--a proxy for systemic liquidity conditions--rose to INR 2.36 trillion against INR 1.94 trillion on Sunday, as per data from the RBI. The liquidity deficit widened on Monday due to outflows of around INR 700 billion, dealers said. The payment for the weekly gilt auction took out INR 360 billion, while the remainder was for goods and services tax payments to the government, they said.

Despite heavy outflows on Monday, the liquidity deficit did not widen sharply due to the RBI's intervention in the foreign exchange market, dealers said. "Given the amount of outflows that took place yesterday (Monday), liquidity would have widened even further had the RBI not conducted a (dollar-rupee) buy/sell operation," a dealer at a state-owned bank said. "Overnight repo operation conducted by RBI on Monday also eased pressure on rates and liquidity."  

Outflows of around INR 1 trillion of goods and service tax payments are expected to take place during the day, of the total outflows of INR 1.5 trillion-INR 1.8 trillion expected this month, dealers said. Overnight rates are likely to be kept in check by the RBI's liquidity support, they said. The RBI conducted variable rate repo operations for INR 1.5 trillion at 1000-1030 IST. According to an Informist poll, the central bank is expected to see bids ranging from INR 300 billion to INR 1.5 trillion. The RBI is expected to set a cut-off of 6.51%. (Siddhi Chauhan)

Following are the other highlights:

* Reversal of funds parked at the Standing Deposit Facility will add INR 786.50 billion to the banking system, according to latest data.

* Reversal of funds parked at the Marginal Standing Facility will drain INR 44.61 billion from the banking system, according to latest data.

* There are no scheduled durable liquidity inflows or outflows during the day. 

* 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 Saji George Titus

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