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Informist, Thursday, Jan. 23, 2025

By Kabir Sharma

MUMBAI – The interbank call money rate ended below the Reserve Bank of India's Standing Deposit Facility rate of 6.25% on Thursday as demand for funds from banks eased towards the end of trade, dealers said. But while the one-day call rate ended at 6.00% as against 6.20% on Wednesday, the weighted average call rate was above the repo rate, highlighting the strain on liquidity in the banking system. The weighted average call rate was at 6.57% on Thursday, largely unchanged from 6.56% Wednesday.

Liquidity conditions have tightened even further in recent days following outflows on account of goods and services tax payments, with the amount of net liquidity injected by the RBI, a proxy for systemic liquidity conditions, rising to INR 2.88 trillion on Wednesday--the highest in a year. According to dealers, GST outflows have drained around INR 1.5 trillion to INR 1.8 trillion from the banking system this week. In a bid to ease conditions, the RBI conducted two overnight variable rate repo auctions on Thursday, with INR 1.46 trillion being borrowed. The second of the two auctions was not fully subscribed.

"The second VRR was not expected by us. But then I think it was needed because the (liquidity) deficit has risen sharply," a dealer at a private bank said. "Since the demand was pretty high in the first auction, they (RBI) would have thought to conduct another overnight auction," the dealer added.

As in the call market, the weighted average rate in the triparty repo market was also above the repo rate at 6.54%, slightly lower than 6.59% on Wednesday.

OUTLOOK

* On Friday, the three-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 two variable rate repo auctions--one for three days and the other for 14 days--for a combined notified amount of INR 3.75 trillion.

CALL RATE

6.00%--Thursday's close for one-day loans

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

6.20%--Wednesday's close for one-day loans

India Call:Above repo rate; liquidity deficit highest in a yr on tax outflow

MUMBAI – The interbank call money rate was above the Reserve Bank of India's repo rate of 6.50% on Thursday as systemic liquidity conditions were the tightest in a year on Wednesday. At 0949 IST, the one-day call money rate was at 6.62% against 6.20% on Wednesday. 

The weighted average call rate was at 6.65% on Thursday against 6.62% on Wednesday. Meanwhile, the weighted average triparty repo rate was at 6.59%, against 6.60% on Wednesday at the same time.

On Wednesday, the net liquidity injected by the RBI--a proxy for systemic liquidity conditions--rose to INR 2.88 trillion, its highest since Jan. 24, 2024. RBI data showed the figure was at INR 2.71 trillion on Tuesday. Liquidity deficit widened due to remaining payments for outflows of goods and services tax and outflows for the state government security auction, dealers said.

Goods and services tax outflows have drained around INR 1.5 trillion to INR 1.8 trillion from the banking system this week, dealers said. Meanwhile, payments for state government security auction led to INR 175 billion leaving the banking system on Wednesday. 

On Wednesday, banks increased the funds under Standing Deposit Facility to INR 753.95 billion after borrowing from the overnight variable rate operation that day. As per RBI data, on Tuesday, funds parked under Standing Deposit Facility were INR 438.94 billion. 

Despite a high deficit, some market participants expect the rates to cool off after the overnight variable rate repo auction being held at 1000-1030 IST for a notified amount of 1.25 trillion, dealers said. "The rates have risen sharply, seeing that I feel participation will be quite high," a dealer at a state-owned bank said. "I feel after the auction rates may cool off as we don't have any significant inflows lined up for the day. GST outflows have already taken place."

Following are the other highlights:

* During the day, net Treasury bill redemptions will add INR 147.55 billion to the banking system. 

* Reversal of overnight day variable rate repo tender will drain INR 1.25 trillion from 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 Avishek Dutta

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