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Informist, Friday, Jan. 31, 2025

By Kabir Sharma

NEW DELHI – The interbank call money rate ended above the Reserve Bank of India's repo rate of 6.50% on Friday due to demand for funds from banks despite a slight ease in liquidity strain in the banking system, dealers said. On Friday, the three-day call money rate ended at 6.65%, against 6.15% for one-day loans on Thursday.  

The weighted average triparty repo was at 6.58%, against 6.55% at the close on Thursday. The weighted average call rate also inched up on Friday to 6.60% from 6.58% on Thursday.

"I think most of the inflows for government month-end spending would have taken place today (Friday)," a dealer at a state-owned bank said. "Despite that, we did not see a cool off in money market rates, though it is difficult to ascertain the reason behind this, but I am guessing it is because of disbursements."

On Thursday, the net liquidity injected by the RBI--a proxy for systemic liquidity deficit--fell to INR 2.22 trillion from INR 2.56 trillion on Wednesday. The liquidity deficit narrowed due to inflows from the government's month-end spending, which would likely have added around INR 400 billion to the banking system on Thursday, dealers said. 

Liquidity may ease in the coming days due to measures taken by RBI, dealers said. On Thursday, RBI bought five gilts worth INR 200.20 billion through an open market auction, the inflows of which will be reflected on Friday. The RBI will also inject liquidity into the banking system a dollar/rupee buy/sell swap auction of $5 billion, for a six-month tenor. Of the 253 bids worth $25.59 billion received, the RBI accepted 28 bids worth $5.10 billion at the swap auction. The settlement for the buy/sell swap auction will take place on Tuesday. 

Dealers will take cues from the Budget for FY26 to be detailed on Saturday, they said.

Following are the other highlights:

* Inflows worth INR 212.54 billion from coupon on state bonds and the RBI's gilt buys at open market operation auction.

* Reversal of funds parked at the Standing Deposit Facility added INR 696.67 billion to the banking system.

* Reversal of overnight variable rate repo tender drained INR 1.17 trillion from the banking system.

OUTLOOK

* On Saturday, the two-day call rate may open around the repo rate on demand for funds from banks.

* RBI will conduct an overnight variable rate repo auction for a notified amount of INR 750.00 billion at 1000-1030 IST on Monday. 

CALL RATE

6.65%--Friday's close for one-day loans

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

6.15%--Thursday'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; govt month-end spending eases cash crunch

MUMBAI – The interbank call money rate was above the Reserve Bank of India's repo rate of 6.50% on Friday due to demand for funds from banks early in the trade, dealers said. At 0930 IST, the three-day call money rate was at 6.65%, against 6.15% for one-day loans on Thursday. 

At 0930 IST, the weighted average triparty repo was at 6.53%, against 6.51% on Thursday. The weighted average call rate was at 6.65%, unchanged from Thursday at the same time.

On Thursday, the net liquidity injected by the RBI--a proxy for systemic liquidity deficit--fell to INR 2.22 trillion from INR 2.56 trillion on Wednesday. The liquidity deficit narrowed due to inflows from the government's month-end spending, which would likely have added around INR 400 billion to the banking system on Thursday, dealers said. 

Since Monday, inflows for the government's month-end spending have added around INR 600 billion to the banking system, dealers said. A major chunk of these inflows are expected to hit the system during the day. Consequently, inflows for month-end spending will amount to INR 1 trillion to INR 1.2 trillion, dealers said. Market participants expect the inflows for the government's month-end spending to be lower than the usual INR 1.5 trillion as the government may stick to only mandated spending like salaries and pensions ahead of the Union Budget for 2025-26 (Apr-Mar) on Saturday.

Liquidity may ease in the coming days due to liquidity measures conducted by RBI, dealers said. On Thursday, RBI bought five gilts through an open market auction, the inflows of which will be reflected on Friday. The RBI will also inject liquidity into the banking system by conducting a dollar/rupee buy/sell swap auction of $5 billion, for a six-month tenor at 1030-1130 IST. The settlement for the buy/sell swap auction will take place on Tuesday. 

Despite the above-mentioned inflows, money market rates are expected to remain at similar levels, dealers said. "I don't think money market rates will cool off because it is the month-end and normally the demand for funds is generally high because of that," a dealer at a state-owned bank said. "Also the rate repo operation for today (Friday) is for three days, so probably some banks won't go all in here." The Reserve Bank of India conducted a three-day variable rate repo auction for a notified amount of INR 1.00 trillion between 1000 IST and 1030 IST on Friday.

Following are the other highlights:

* Inflows worth INR 212.34 billion from coupon on state bonds and the RBI's gilt buys at open market operation auction are scheduled.

* Reversal of funds parked at the Standing Deposit Facility will add INR 696.67 billion to the banking system.

* Reversal of overnight variable rate repo tender will drain INR 1.17 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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