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Informist, Wednesday, Feb. 5, 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% on Wednesday as liquidity deficit in the banking system narrowed to a one-month low, helping drag down the weighted average rates in the call and triparty repo markets below the policy rate of 6.50%.

On Wednesday, the one-day call money rate ended at 5.75% as against 6.50% Tuesday, while the weighted average call rate was 6.46%, down from 6.50%. The weighted average triparty repo rate, which reflects conditions in a larger funding market that includes mutual funds, was even lower at 6.25%.

"The rates have finally cooled off due to the swap settlement today. Until some outflows start early next week, you will see rates around these levels" a dealer at a state-owned bank said.

As part of its wide-ranging measures to improve liquidity conditions, the RBI on Friday conducted a dollar/rupee buy/sell swap auction for $5.10 billion, with the first leg of the swap settled on Tuesday. This auction came a day after the central bank purchased INR 200.20 billion worth of government bonds via open market operations. As part of its measures, the RBI will conduct a 56-day variable rate repo on Friday for INR 500.00 billion.

The RBI's actions have had a telling impact, with the central bank injecting a net INR 382.16 billion on Tuesday, the lowest since Jan. 5.

Following are the other highlights:

* Reversal of the overnight variable rate repo tender drained INR 250.01 billion from the banking system.

* Wednesday's overnight variable rate repo auction for INR 250.00 billion was under-subscribed, with INR 211.80 billion being borrowed.

OUTLOOK

* On Thursday, 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.

* RBI will conduct an overnight variable rate repo operation for INR 250.00 billion at 1000-1030 IST.

CALL RATE

5.75%--Wednesday's close for one-day loans

6.60%--Wednesday's open for one-day loans

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

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: At RBI's repo rate as liquidity deficit falls to 1-mo low

MUMBAI – The interbank call money rate was at the Reserve Bank of India's repo rate of 6.50% due to demand for funds from banks early in the trade, dealers said. At 0945 IST, the one-day call money rate was at 6.50%, unchanged from Tuesday's close.

At 0945 IST, the weighted average call rate was at 6.57% against 6.61% on Tuesday. The weighted average triparty repo – a larger funding market that includes mutual funds – rate was at 6.27%, against 6.39% on Tuesday. Money market rates cooled off due to an ease in banking system liquidity, dealers said.

On Tuesday, the net liquidity injected by RBI fell to the lowest level since Jan. 5. Net liquidity injected — a proxy for systemic liquidity deficit – was at INR 382.16 billion on Tuesday against INR 1.08 trillion on Monday. The deficit narrowed due to the settlement of dollar/rupee buy/sell swap which was conducted by RBI on Friday, dealers said.

"The deficit has fallen by INR 700 billion out of which INR 400 billion is accounted for. This amount was the settlement of the buy/sell swap. But it is quite difficult to understand what the remaining inflows were for," a dealer at a state-owned bank said. "There are some corporate repayments that are happening, but I don't know if the amount of those will be that high."

The ease in liquidity was also visible in the increase in funds parked under the standing deposit facility, dealers said. As per RBI data, funds parked under the standing deposit facility rose to INR 1.59 trillion on Tuesday from INR 1.14 trillion on Monday.

"Triparty (repo) rates fell to as low as 6.10% yesterday, many banks would have borrowed heavily and have parked under the SDF," a dealer at a private bank said. "This enabled them to earn a good spread after parking at 6.25% (the SDF rate)." 

The overnight variable rate repo auction for INR 250 billion at 1000-1030 IST is expected to be undersubscribed due to easing funding costs in the interbank market. However, some banks were surprised by a similar quantum being fully subscribed on Tuesday, and said they could not rule out the possibility of another such surprise, where banks would borrow money from the RBI at a minimum rate of 6.51%.

"Yesterday (Tuesday), despite triparty rates being lower than repo rate, banks still bid aggressively at the auction," a dealer at a state-owned bank said. "This is not something most of us had expected, so I guess today we might also see a similar situation."

Following are the other highlights:

* Net outflows of INR 306.71 billion seen largely due to payment of state government security auction. 

* Reversal of the overnight variable rate repo tender will drain INR 250.01 billion from the banking system.

* During the day, the call rate is seen in a range of 6.00-6.70%. (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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