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Informist, Tuesday, Jan. 28, 2025

By Kabir Sharma

MUMBAI – The interbank call money rate ended above the Reserve Bank of India's repo rate of 6.50% on Tuesday due to firm demand for funds from banks amid tight liquidity conditions in the banking system, dealers said. The one-day call money rate ended at 6.55% on Tuesday against 6.25% on Monday. 

The liquidity crunch was apparent as the weighted average call rate remained above the RBI's repo rate through the day. The weighted average call rate was at 6.55% on Tuesday, marginally down from Monday'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, at 6.53%, unchanged from Monday.

The net liquidity injected by the RBI--a proxy for systemic liquidity conditions--was at INR 3.10 trillion on Monday against INR 3.13 trillion on Sunday. "The rates (in the money market) will remain high until tomorrow (Wednesday). When the new measures kick in on Thursday, you can see some relief from there," a dealer at a state-owned bank said. 

The central bank Monday announced that it will buy government bonds worth INR 600 billion via three open market operation auctions. The RBI will also conduct a dollar/rupee buy/sell swap auction for $5 billion on Friday, 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 Monetary Policy Committee has left the repo rate unchanged at 6.50% for two years, but market participants expect the committee to finally lower it next month.

Volume in the longer tenures of the call money market was significantly affected post the announcement of the central bank liquidity measures. Volume in the 15-day tenure of the call money market fell sharply to INR 2.22 billion from INR 13.93 billion on Monday. The number of trades was down to 5 against 48 on Monday.  

Dealers also said month-end spending by the government, which is expected to begin from Wednesday, will also help ease liquidity conditions.

Following are the other highlights:

* Tuesday's overnight variable rate repo auction saw INR 1.39 trillion being borrowed from the RBI, with the reversal of Monday's tender seeing the exit of INR 1.94 trillion.

* Reversal of funds parked at the Standing Deposit Facility added INR 558.81 billion to the banking system.

OUTLOOK

* On Wednesday, 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 1.75 trillion at 1000-1030 IST on Wednesday.

CALL RATE

6.55%--Tuesday's close for one-day loans

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

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

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Above RBI's repo rate on demand for funds from banks

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 in early trade, dealers said. At 0949 IST, the one-day call money rate was at 6.65% against 6.25% on Monday.  

At 0930 IST, the weighted average triparty repo was at 6.50% against 6.56% on Monday. The weighted average call rate was at 6.63% on Tuesday, against 6.65% on Monday during the same time. A slight cooling off was seen in money market rates on Tuesday as the central bank announced measures to ease liquidity conditions post market hours on Monday, dealers said. 

The central bank announced that it will conduct open market purchase of bonds to the tune of INR 600 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.

Apart from these measures, the rates will also be supported due to the daily overnight variable rate operations, dealers said. "These measures may help keep the triparty repo rate between 6.42% and 6.57% and the call rate between 6.58% and 6.65%. However, its impact on liquidity is quite temporary," a dealer at a private bank said. "It may provide a relief to high deficit, but this will not be sufficient to narrow down the durable liquidity." On Monday, the net liquidity injected by the RBI--a proxy for systemic liquidity conditions--was at INR 3.10 trillion against INR 3.13 trillion on Sunday.

At the variable rate repo operation during 1000-1030 IST, most market participants expect full subscription, dealers said. However, a few might not borrow aggressively as the weighted average repo triparty rate was trading at the repo rate of 6.50% at 1000 IST, dealers said.

Following are the other highlights:

* Reversal of funds parked at the Standing Deposit Facility will add INR 558.81 billion to the banking system.

* Net inflows worth INR 205.84 billion will take place during the day due to state bond coupons and redemption of state bond coupon.

* Reversal of overnight variable rate repo tenders will drain INR 1.94 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 Tanima Banerjee

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