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Informist, Tuesday, Feb. 4, 2025

By Siddhi Chauhan

MUMBAI – The weighted average call rate ended at the Reserve Bank of India's repo rate of 6.50% on Tuesday as the liquidity deficit fell to the lowest level since Jan. 6, dealers said. The one-day call money rate ended at 6.50%, against 5.90% on Monday.

The one-day call money rate ended at 6.50%, against 5.90% on Monday. The weighted average call rate ended at 6.50%, falling from 6.56% on Monday. The weighted average tri-party repo rate declined to 6.27% Tuesday from 6.38% Monday. The reduction in liquidity deficit resulted in a sharp fall in money market rates, dealers said. On Monday, the net liquidity injected by the RBI — a proxy for systemic liquidity deficit – fell to INR 1.08 trillion from INR 1.59 trillion on Sunday. 

Liquidity deficit fell due to inflows for government month-end spending and liquidity tools used by the RBI to infuse cash into the system, dealers said. Inflows on account of government month-end spending would have added around INR 1.5 trillion into the banking system since last week, dealers said. 

In the week ended Jan. 31, the RBI purchased INR 200.20 billion worth of government bonds through open market operation auctions. The central bank also conducted a $5-billion dollar/rupee buy/sell swap on Jan. 31. Settlement of which took place during the day, adding around INR 400 billion to the system, dealers said. The RBI is also set to carry out two more open market operations worth a total of INR 400 billion this month, along with a 56-day variable rate repo of INR 500 billion on Friday.

Market participants expect the systemic liquidity deficit to fall further in coming days, dealers said. However, the fall in deficit may be limited due to outflows of tax deducted at source and excise duty which will start from Friday, dealers said. 

"I see the deficit falling this week because inflows for dollar/rupee buy/sell swap will be reflected in tomorrow's (Wednesday) figure. This will keep the weighted average triparty repo rate in the range of 6.30%-6.40% till Thursday, while the weighted average call rate may not rise beyond 6.55%," a dealer at a state-owned bank said. "On Friday, though strain on liquidity will be visible due to outflows for tax deducted at source." Outflows for excise duty and tax deducted at source will drain INR 500 billion to INR 700 billion from banking system, dealers said. 

Despite an ease in money market rates leading to an availability of cash at cheaper rates, the overnight variable rate operation conducted during the day saw full subscriptions. This surprised the market as most of the banks expected the auction to be undersubscribed, dealers said. 

"It is very surprising for us, despite weighted average triparty repo rate being below repo rate, we saw full subscription indicating more demand. If you see, despite the deficit falling from the previous day's figure, the volume in the TREPS market did not fall," a dealer at a private bank said. "It seems that mutual funds have a good amount of funds."

At the overnight variable repo operation conducted at 1000-1030 IST for a notified amount of INR 500 billion, the central bank accepted bids worth INR 250.01 bln out of INR 255.24 billion bids received. The central bank set a cut-off of 6.51%. 

Following are the other highlights:

* Inflows of INR 8.09 billion added to the system due to payment for coupon on state government bonds.

* Reversal of the overnight variable rate repo tender drained INR 487.85 billion from the banking system.

OUTLOOK

* On Wednesday, 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 6.00-6.70%, dealers said.

CALL RATE

6.50%--Tuesday's close for one-day loans

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

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

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

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

MUMBAI – The interbank call money rate was below the Reserve Bank of India's repo rate of 6.50% as the liquidity deficit narrowed on account of government spending, dealers said. At 0945 IST, the one-day call money rate was at 6.35%, against 5.90% at close on Monday.

At 0945 IST, the weighted average call rate was at 6.61% against 6.65% on Monday. The weighted average triparty repo – a larger funding market that includes mutual funds – rate was at 6.36%, against 6.49% on Monday. Money market rates cooled off due to ease in banking system liquidity, dealers said.

On Monday, the net liquidity injected by RBI — a proxy for systemic liquidity deficit – fell to INR 1.08 trillion from INR 1.59 trillion on Sunday. The net injected liquidity on Monday was the lowest since Jan. 6. The deficit narrowed due to government's month-end spending and various measures used by RBI to inject liquidity, dealers said.

"If we see from the previous week, the RBI has injected roughly INR 230 billion into the system through the purchase of gilts and buyback auction," a dealer at a state-owned bank said. "Along with this, (dollar/rupee) buy/sell auction will add around INR 400 billion on Tuesday. If we keep these figures aside, I don't think month-end spending would be higher than INR 1.50 trillion."

Money market participants have estimated the inflows to be in the band of INR 1 trillion to INR 1.2 trillion. With the influx of cash, banks increased the funds parked under Standing Deposit Facility to INR 1.13 trillion on Monday, against INR 997.12 billion on Sunday, as per RBI's data. 

The daily overnight variable rate repo auction was the smallest since the RBI began the operation on Jan. 16, but even so may not be fully subscribed due to the fall in overnight rates, dealers said. The auction for a notified amount of INR 250 billion was held from 1000-1030 IST and. "I feel the auction will be undersubscribed as the weighted average triparty repo rate is sharply below the repo rate, so why would anyone borrow at 6.51%," a dealer at a state-owned bank said.

Following are the other highlights:

* Inflows of INR 8.09 billion due to payment for coupon on state government bonds.

* Reversal of the overnight variable rate repo tender will drain INR 487.85 billion from the banking system.

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