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Informist, Monday, Jan. 27, 2025

By Kabir Sharma

MUMBAI – The interbank call money rate ended at the Reserve Bank of India's Standing Deposit Facility rate of 6.25% on Monday as demand for funds from banks eased towards the end of trade, dealers said. However, the weighted average rate was unchanged from Friday's 6.57%. The weighted average rate in tri-party repo, which represents a larger funding market where mutual funds are active lenders, was also above the repo rate, standing at 6.53%, slightly lower from 6.58% Friday.

Borrowing rates in the call and tri-party repo market remained above the repo rate for most of Monday as systemic liquidity deficit remained near one-year highs. On Sunday, the net liquidity injected by the RBI--a proxy for systemic liquidity conditions--was INR 3.13 trillion, up from INR 2.72 trillion injected on Friday. Post market hours on Monday, the central bank finally took substantial measures to relax the tight financial conditions caused by its dollar sales in defence of the rupee, announcing the open market purchase of bonds to the tune of INR 600.00 billion by Feb. 20, a dollar/rupee buy/sell swap auction for $5 billion, and a 56-day variable rate repo auction for INR 500 billion on Feb. 7, the day the Monetary Policy Committee will announce its next interest rate decision. The MPC has left the repo rate unchanged at 6.50% for two years but is expected to finally lower it next month.

According to dealers, borrowing rates in the money market are expected to cool down going forward, thanks to the RBI's measures, with the central bank adding that it will "continue to monitor evolving liquidity and market conditions and take measures as appropriate to ensure orderly liquidity conditions". Dealers also said month-end spending by the government, which is expected to begin by Wednesday, will also help ease liquidity conditions. 

Following are the other highlights:

* Monday's overnight variable rate repo auction saw INR 1.94 trillion being borrowed from the RBI, with the reversal of Friday's three-day tender seeing the exit of INR 2.00 trillion.

OUTLOOK

* On Tuesday, the one-day call rate may open around the repo rate on demand for funds from banks.
* During the day, the call rate is seen in a range of 6.00-6.90%, dealers said.

* RBI will conduct an overnight variable rate repo auction for INR 2.00 trillion at 1000-1030 IST.

CALL RATE

6.25%--Monday's close for one-day loans

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

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

BENCHMARK MIBOR (in per cent)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Above RBI's repo rate; GST outflows end, RBI dollar sales ease

MUMBAI – The interbank call money rate was above the Reserve Bank of India's repo rate of 6.50% on Monday due to demand for funds from banks in early trade, dealers said. At 0949 IST, the one-day call money rate was at 6.65% against 6.40% for three-day loans on Friday.  

The weighted average triparty repo was at 6.55% against 6.58% on Friday. The weighted average call rate was at 6.65% on Monday, against 6.57% on Friday. Money market rates are likely to cool due to improving liquidity conditions, with the tightness last week expected to ease this week due to the government's month-end spending.

On Friday, the net liquidity injected by the RBI--a proxy for systemic liquidity conditions--fell to INR 2.82 trillion against INR 3.16 trillion on Thursday. The liquidity deficit cooled off after rising to a year-high as outflows for goods and services tax ended, and the RBI likely did not have to sell dollars heavily last week to protect the rupee. The domestic unit appreciated 0.5% to 86.2050 against the greenback last week after falling to a record low the prior week. 

"Having maintained the appropriate amount of funds for cash balance, banks would have parked some cash under SDF on Friday," a dealer at a state-owned bank said. "Other than this, there couldn't be any other reason for a fall in deficit."

As per data released on Friday, the central bank bought INR 101.75 billion worth of bonds outside auction, the largest gross purchase since September 2021 and the largest non-auction buys since April of that year. Traders have been keenly watching for the RBI's measures to infuse durable liquidity into the banking system at a time when its dollar sales to support the rupee's slide have tightened liquidity conditions.

Market participants expect the central bank to continue providing support to liquidity by purchasing gilts and conducting daily variable rate repo operations as inflows from month-end spending are expected to be less than usual, dealers said. 

"There are rumours that this time the spending will be less than usual as the capital expenditure spending would be less ahead of the Budget," a dealer at a private bank said. "We will only see the mandatory spending, which is salary and pensions."  

Traders will also meet their liquidity requirements through the overnight auction Monday. From 1000 IST to 1030 IST, the RBI conducted an overnight variable rate repo auction for a notified amount of INR 2 trillion. Out of the notified amount, the central bank received bids worth INR 1.94 trillion at a cutoff rate of 6.51%.

Following are the other highlights:

* Reversal of funds parked at the Standing Deposit Facility will add INR 77.05 billion to the banking system on Monday, as per RBI data for Friday.

* Inflows worth INR 29.63 billion are scheduled due to green bond and state bond coupons.

* Outflows due to payments for Friday's government security auction will drain INR 320 billion.

* Reversal of three-day variable rate repo tenders will drain INR 2 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 Akul Nishant Akhoury

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