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Informist, Tuesday, Feb. 11, 2025

By Siddhi Chauhan and Kabir Sharma

MUMBAI – The weighted average call rate on Tuesday was above the repo rate of 6.25%, with the liquidity deficit in the banking system increasing sharply on account of the Reserve Bank of India's interventions in the foreign exchange market, dealers said. The one-day call rate as well as the weighted average rate ended at 6.33% Tuesday. On Monday, the call rate had settled at 6.10%, while the weighted average rate was little changed at 6.32%. Meanwhile, the weighted average rate in the larger triparty repo market--which includes mutual funds--was 6.23%, only slightly lower than 6.25% Monday.

"The (liquidity) deficit has widened sharply," a dealer at a state-owned bank said. "Some of the rise is because of gilts payment settlement. It couldn't be because of TDS (tax deducted at source) and excise duty (payments) because the impact of these outflows was seen in Friday's liquidity. It has to be forex intervention. RBI has been selling dollars in the spot market."

On Monday, the net liquidity injected by the RBI--a proxy for systemic liquidity conditions--rose to INR 1.96 trillion from INR 1.33 trillion Sunday and as low as INR 382.16 billion on Feb. 4.

The RBI has sold dollars heavily this week in an attempt to stem the fall in the rupee, which on Monday was just 5 paise away from touching the 88 a dollar. The central bank's spot dollar sales drain out rupee liquidity from the banking system and foreign exchange market dealers estimate the central bank sold around $15 billion in spot on Monday and Tuesday. At the current exchange rate, this equals roughly INR 1.3 trillion.

On Tuesday, the rupee jumped as much as 84 paise to a high of 86.6400 a dollar, logging its biggest single-day gain in over two years. In addition to its dollar sales, the RBI has also intevened to the tune of around $10 billion in the offshore non-deliverable forwards market since Monday, Informist reported earlier on Tuesday, to drive away speculative bets against the rupee. The US' decision Monday to slap a 25% tariff on all steel and aluminium imports, and a warning that reciprocal tariffs will follow in the coming days, has led to heightened uncertainty globally, exerting pressure on rupee, among other currencies.

The strain on local rupee liquidity was apparent at the daily variable rate repo auction for INR 2.00 trillion on Tuesday, which was fully subscribed. Going forward, liquidity conditions and consequently money market rates are expected to remain under pressure due to the RBI's interventions in the foreign exchange market, dealers said.

"The coming week would be quite heavy (for) liquidity and money market rates as a huge chunk of outflows will take place because of forex intervention," a dealer at another state-owned bank said.

OUTLOOK

* On Wednesday, 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 the range of 5.75-6.40%, dealers said.

* Payment of INR 183.19 billion for Tuesday's state government bond auctions will be made on Wednesday.

* The RBI will conduct an overnight variable rate repo auction for INR 2.50 trillion from 1000-1030 IST. 

CALL RATE

6.33%--Tuesday's close for one-day loans

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

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

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call:Sharply above repo rate as systemic deficit hovers near INR 2 tln

MUMBAI – The interbank call money rate was sharply above the new repo rate of 6.25% due to demand for funds from banks as the liquidity deficit widened on Monday, dealers said. The one-day call rate was at 6.40% Tuesday, higher than 6.10% at close on Monday. 

The weighted average call rate was at 6.40% at 0945 IST, unchanged from the same time on Monday. The weighted average rate in the larger tri-party repo market--which includes mutual funds--was at 6.29% compared to 6.27% on Monday.

On Monday, the net liquidity injected by the RBI--a proxy for systemic liquidity deficit--rose to INR 1.96 trillion from INR 1.33 trillion on Sunday. The liquidity deficit widened partly due to payments for gilt auction, which drained INR 220 billion from the banking system Monday.

Some participants also attributed the rise in deficit to be caused by dollar sales conducted by RBI in the spot foreign exchange market on Monday. However, this speculation was refuted by other dealers, who believed the impact of this operation will be seen only on Wednesday's liquidity. 

Due to the widening of deficit, money market rates were also under pressure, dealers said. "I feel that rates will remain on the higher side today (Tuesday) because of a sharp rise in deficit," a dealer at a state-owned bank said. "This could lead to good participation in the overnight variable repo operation today (Tuesday) as we will get funds at a cheaper rate."

At the overnight variable rate repo operation, to be held at 1000-1030 IST for a notified amount of INR 2 trillion, money market participants expect around 80% subscription with the central bank setting a cut off of 6.26%.

Following are the other highlights:
* Net inflows of INR 141.45 billion largely due to redemption of state bonds. 

* Reversal of overnight variable rate repo tender will drain INR 2.01 trillion from the banking system.

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