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Informist, Monday, Feb. 10, 2025

By Siddhi Chauhan and Kabir Sharma

MUMBAI – The weighted average call rate ended above the Reserve Bank of India's repo rate of 6.25% Monday as liquidity remained in a sizeable deficit of over INR 1 trillion, dealers said. The one-day call rate was at 6.10% Monday, compared with 5.75% for a three-day loan Friday. 

The weighted average call rate ended at 6.32%, compared with 6.26% Friday. The weighted average in the larger tri-party repo market--which includes mutual funds--was at 6.25%, compared with 6.26% Friday.

On Sunday, the net liquidity injected by the RBI--a proxy for systemic liquidity conditions--was INR 1.33 trillion, against INR 1.35 trillion Saturday. Net liquidity injected by the central bank Friday was INR 1.08 trillion, as per RBI data.

While the deficit was little changed from Saturday, it rose by INR 247.23 billion from Friday. This widening of the deficit was an impact of banks increasing their cash balance maintained with the RBI, dealers said. "Generally, banks try to maintain a higher cash balance in the first week of the fortnight so they don't face an issue in maintaining the required average amount," a dealer at a state-owned bank said. 

As per prudential norms, banks are required to maintain a cash reserve ratio with the central bank averaged across the fortnight. In the fortnight ending Feb. 21, banks are supposed to maintain an average cash balance of INR 9.12 trillion with the RBI. On Sunday, banks had maintained a cash balance of INR 9.10 trillion against INR 9.13 trillion Saturday, data from the RBI showed. On Friday, cash balances maintained with the RBI were INR 8.85 trillion.

During the day, the RBI conducted an overnight variable rate repo auction for a notified amount of INR 2.25 trillion between 1000 IST and 1030 IST. The auction saw bids worth INR 2.01 trillion, all of which were accepted by the RBI at a cut-off rate of 6.26%. These auctions are part of the central bank's daily operations to infuse liquidity. This was in line with the expectations of market participants, who had expected to see around 80% subscription at the auction, dealers said. 

Following are the other highlights:

* Reversal of the three-day variable rate repo tender drained INR 1.33 trillion from the banking system.

* Payments for the weekly gilt auction drained INR 220 billion from the banking system Monday.

OUTLOOK

* On Tuesday, the one-day call money rate may open above the RBI's repo rate of 6.25% 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 5.75-6.40%, dealers said.

* The RBI will conduct an overnight variable rate repo auction for INR 2 trillion at 1000-1030 IST on Tuesday.

CALL RATE

6.10%--Monday's close for one-day loans

6.40%--Monday's open for one-day loans

5.75%--Friday's close for three-day loans

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Above repo as liquidity deficit widens on excise duty outflows

MUMBAI – The interbank call money rate was above the new repo rate of 6.25% due to demand for funds from banks as the liquidity deficit widened on Friday, dealers said. The one-day call rate was at 6.40% Monday, sharply higher than 5.75% at close on Friday. The Reserve Bank of India cut its policy repo rate by 25 basis points to 6.25% on Friday.

The weighted average call rate was at 6.40% at 1050 IST, compared to 6.35% around the same time on Friday. The weighted average in the larger tri-party repo market--which includes mutual funds--was at 6.30% compared to 6.15% on Friday.

"Liquidity again fell...because of excise payments, with the gilts payment also due today we expect call and TREPS (rates) to be a bit on the higher side," a dealer at a state-owned bank said. Payments for the weekly gilt auction will drain INR 220 billion from the banking system Monday.

On Friday, the net liquidity injected by the RBI--a proxy for systemic liquidity deficit--rose to INR 1.08 trillion from INR 697.55 billion Thursday, although the figure is sharply lower from that in the second half of January, thanks to the central bank's actions. Dealers said there were outflows to the tune of INR 600 billion – INR 650 billion for excise duty payments, which weighed on systemic liquidity.

The Reserve Bank of India conducted an overnight variable rate repo auction for a notified amount of INR 2.25 trillion between 1000 IST and 1030 IST. Dealers said the variable rate repo auction will see good traction because of the deficit and may see around 70-80% subscription. The auction is part of RBI's daily operations to infuse liquidity. 

Following are the other highlights:

* Reversal of the three-day variable rate repo tender will drain INR 1.33 trillion from the banking system.

* During the day, the call rate is seen in a range of 5.75-6.45%.  (Kabir Sharma)

End

US$1 = INR 87.4750

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

Edited by Rajeev Pai

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