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Informist, Monday, Feb. 3, 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% Monday, as demand for funds from banks eased towards the end of the trading session amid improvement in liquidity conditions, dealers said. The one-day call money rate ended at 5.90%, down from 6.00% for two-day loans on Saturday. However, the weighted average call rate stayed above the repo rate, falling slightly from Friday to 6.56%.

"Liquidity was much better due to month-end spending and there were pension inflows as well, so that helped," said a dealer at a state-run bank. "There were no outflows except the scheduled ones, which you can see affected rates in TREPs (tri-party repo) today." Pension payments by state governments added nearly INR 100 billion to systemic liquidity Friday.

The weighted average tri-party repo rate declined to 6.38% Monday from 6.58% Friday.

Financial conditions in the banking system have eased markedly in recent days, driven by the government's month-end spending and the RBI's durable liquidity additions, which will pick up pace in the coming days. On Friday, the net liquidity injected by the RBI--a proxy for the deficit in the system--fell below INR 2 trillion for the first time since Jan. 19. The figure, which stood at INR 1.75 trillion Friday, declined further to INR 1.59 trillion Sunday.

Liquidity also eased following the RBI's open market purchase of gilts worth INR 200.20 billion Thursday, with payment made Friday. That same day, the central bank conducted a dollar-rupee buy-sell swap auction for $5 billion, the first leg of which will be settled Tuesday. The RBI is also set to carry out two more open market operations for INR 400 billion this month, along with a 56-day variable rate repo of INR 500 billion Friday.

Following are the other highlights:

* Reversal of overnight variable rate repo tender drained INR 1.00 trillion from the banking system.

* At the daily variable rate repo auction Monday, the RBI accepted all bids for INR 487.85 billion against the notified amount of INR 750.00 billion.

OUTLOOK

* On Tuesday, the one-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 reserve requirements.

* 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 operation for INR 250.00 billion at 1000-1030 IST.

CALL RATE

5.90%--Monday's close for one-day loans

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

6.00%--Saturday's close for two-day loans

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Above RBI's repo rate even as liquidity deficit narrows

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 to meet statutory requirements, dealers said. At 0945 IST, the one-day call money rate was at 6.65%, against 6.00% for two-day loans at close on Saturday.

At 0945 IST, the weighted average call rate was at 6.65% against 6.24% on Saturday. The weighted average triparty repo rate – a larger funding market that includes mutual funds – was at 6.49%, against 6.09% on Saturday.

On Friday, the net liquidity injected by the RBI fell below INR 2 trillion for the first time since Jan. 19. The proxy for systemic liquidity deficit fell to INR 1.75 trillion from INR 2.22 trillion on Wednesday. Dealers said liquidity conditions improved due to the Centre's month-end spending and the settlement of the RBI's open market gilt purchases. 

The government's month-end spending last week was likely lower than the usual INR 1.5 trillion, but at the upper end of the estimated INR 1.0 trillion-INR 1.2 trillion band, dealers said. The Centre usually does not make payments beyond mandatory salaries and pensions before the Budget, which was presented on Saturday. Furthermore, inflows from the payment of the RBI's gilt purchases at an open market operation auction on Thursday, worth INR 200.20 billion, got added to the banking system liquidity on Friday.

Pension payments by state governments are the only likely inflows Monday, which are not expected to total more than INR 100 billion. On the other hand, payments worth INR 300 billion for bonds at the weekly gilt auction held on Friday will drain liquidity.

The call money rate would ease but remain above the repo rate on Monday due to the outflows and the smaller than expected daily variable rate repo auction. The central bank is holding an INR 750-billion, overnight VRR auction at 1000-1030 IST, against INR 1.00 trillion maturing from Friday's auction. "Sometimes the RBI is giving a bigger quantum, sometimes it is tightening the quantum. We are not sure what to make from it, and we're hoping it will give clarity at the MPC (Monetary Policy Committee) meeting," a dealer at a private bank said. No major outflows are scheduled until excise duty payments on Friday, which could keep overnight rates in check until then, dealers said.

Following are the other highlights:

* Outflows of INR 258.82 billion largely due to payment for gilt auction, slightly cut down by coupon payments on bonds by the Centre and state governments

* Reversal of funds parked with the RBI will net add INR 32.66 billion to liquidity the banking system.

* Reversal of overnight variable rate repo tender will drain INR 1.00 trillion from the banking system.

* During the day, the call rate is seen in a range of 6.00-6.80%. (Aaryan Khanna)

End

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Edited by Subhojit Sarkar

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