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Informist, Friday, Jan. 24, 2025

By Siddhi Chauhan

MUMBAI – The weighted average call rate ended above the Reserve Bank of India's repo rate of 6.50% due to tight liquidity conditions and high demand for funds on reporting day. However, liquidity support from the Reserve Bank of India's repo operations kept a lid on overnight borrowing rates, dealers said. The three-day call money rate ended at 6.40% against 6.00% on Thursday, while the weighted average rate cooled was at 6.57%, unchanged from the previous day's figure.

The weighted average rate in triparty repo, which represents a larger funding market where mutual funds are active lenders, was at 6.58%, slightly up from 6.54% on Thursday.

Money market rates remained well above the RBI's repo rate of 6.50% for most of the day as the systemic liquidity deficit rose to a year's high level. On Thursday, the net liquidity injected by the RBI--a proxy for systemic liquidity conditions--rose to INR 3.16 trillion, the highest level since Jan. 24, 2024, against INR 2.88 trillion on Wednesday.

The cash crunch worsened as banks tried to meet their cash reserve requirements with the RBI as this was a reporting Friday, dealers said. As per prudential norms, banks are required to maintain a cash reserve ratio with the central bank averaged across the fortnight. In the fortnight ending Friday, banks are supposed to maintain an average cash balance of INR 9.10 trillion with the RBI. On Thursday, banks had maintained a cash balance of INR 8.97 trillion, data from RBI showed.

Adding to the liquidity deficit, outflows worth INR 3.71 trillion took place during the day due to the reversal of three variable rate repo tenders. Out of the three tenders, two were overnight, which drained INR 1.46 trillion from the banking system, while the 14-day tender drained INR 2.25 trillion. 

Keeping these outflows in mind, the RBI conducted two variable repo tenders during the day, which supplied INR 3.62 trillion into the banking system. At the three-day variable repo tenders conducted at 1000-1030 IST, the central bank accepted bids worth INR 2 trillion against INR 2.23 trillion received. 

The second auction, which was for a 14-day tenure, saw bids for INR 1.62 trillion, all of which were accepted, against a notified amount of INR 1.75 trillion. "Despite a higher tenure, the 14-day VRR auction saw good demand from because of the heavy outflows due for today(Friday). Banks also need cash reserve funds because this is a reporting Friday," a dealer at a state-owned bank said. "Generally, banks don't prefer borrowing aggressively through 14-day VRR because they will be locking funds for such a longer period."

Following are the other highlights:

* Reversal of funds parked at the Standing Deposit Facility added INR 674.58 billion to the banking system.

* Net inflows worth INR 166.02 billion were added due to gilt and state bond coupons, and after the government's bond buyback on Thursday. 

* Reversal of two overnight day variable rate repo tenders drained INR 1.46 trillion from the banking system

* Reversal of the 14-day variable rate repo tender drained INR 2.25 trillion from the banking system

OUTLOOK

* Money markets are shut on Saturday. On Monday, the one-day call rate may open above the repo rate of 6.50% on demand for funds from banks.
* During the day, the call rate is seen in a range of 6.00-6.90%, dealers said.

CALL RATE

6.40%--Friday's close for three-day loans

6.65%--Friday's open for three-day loans

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

BENCHMARK MIBOR (in per cent)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Above repo rate; liquidity deficit highest in a year

MUMBAI – The interbank call money rate was above the Reserve Bank of India's repo rate of 6.50% on Friday as the systemic liquidity deficit crossed the INR-3-trillion mark and was the highest in 12 months, dealers said. At 0949 IST, the three-day call money rate was at 6.60% against 6.00% for one-day loans on Thursday.  

The weighted average triparty repo was at 6.65% against 6.59% on Thursday. The weighted average call rate was at 6.58% on Friday against 6.65% on Thursday. 

On Thursday, the net liquidity injected by the RBI--a proxy for systemic liquidity conditions--rose to INR 3.16 trillion, the highest level since Jan. 24, 2024, against INR 2.88 trillion on Wednesday. However, the cause of the widening of the deficit remained unclear, dealers said. "It is difficult to tell what could have led the deficit to widen, especially when we didn't have any outflows scheduled for yesterday (Thursday)," a dealer at a state-owned bank said. 

During the day, the RBI will conduct two variable operations which will add INR 3.75 trillion into the banking system. "This will not only help in easing the liquidity conditions but will also make it easy for us to secure funds for reporting Friday," a dealer at a private bank said. 

At 1000 IST and 1030 IST, RBI conducted a three-day variable rate repo auction for a notified amount of INR 2.00 trillion. As per an Informist poll, the auction is expected to be fully subscribed with RBI likely setting the cut-off rate at 6.52%. After the daily auction, which includes primary dealers, the RBI will also conduct a main 14-day operation for INR 1.75 trillion at 1130-1200 IST under its Liquidity Adjustment Facility framework.

Following are the other highlights:

* Reversal of funds parked at the Standing Deposit Facility will add INR 674.58 billion to the banking system.

* Net inflows worth INR 166.02 billion are scheduled due to gilt and state bond coupons, and after the government's bond buyback on Thursday. 

* Reversal of two overnight day variable rate repo tenders will drain INR 1.46 trillion from the banking system

* Reversal of the 14-day variable rate repo tender will drain INR 2.25 trillion from 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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