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Informist, Wednesday, Feb. 12, 2025

By Siddhi Chauhan

MUMBAI – The weighted average call rate on Wednesday was above the Reserve Bank of India's repo rate of 6.25% as liquidity remained under strain after the central bank heavily intervened in the foreign exchange market for the third consecutive day, dealers said. The weighted average call rate was at 6.29% on Wednesday against 6.33% on Tuesday even as the one-day call rate ended at 5.50% against 6.33% on Tuesday. The weighted average triparty repo rate, which includes mutual funds, was at 6.26% marginally up from 6.23% on the previous day.  

The RBI has been heavily selling dollars in the foreign exchange market to support the rupee, which has been under severe depreciation pressure because of global market volatility, dealers said. The central bank is estimated to have sold over $15 billion in the domestic spot market since Monday, which would translate to a liquidity drain of around INR 1.4 trillion. Although the central bank is said to have sterilised some of this intervention through dollar/rupee buy/sell swaps in the currency forwards segment, the strain on liquidity is still expected to be substantial.  

"The rates are already under pressure as the liquidity remains in deficit, forex intervention is also adding to the burden," a dealer at a state-owned bank said.

At the overnight variable rate repo operation conducted during the day, RBI accepted all bids worth INR 1.94 trillion at 6.26% against a notified amount of INR 2.50 trillion. Market participants had expected a decent demand due to outflows worth around INR 400 billion to INR 500 billion from the banking system due to the settlement of RBI spot sales on Monday, dealers said.

However a few banks were surprised by the demand at the auction as the weighted average triparty repo rate went to as low as 6.23% in the initial trading half on Wednesday, dealers said. "I don't understand which banks are these who are borrowing at a higher rate," a dealer at a private bank said. "It is quite difficult to understand this, if I am getting it below the repo rate, why would I borrow at a higher rate?"

On Tuesday, the net liquidity injected by the RBI--a proxy for systemic liquidity conditions--was at INR 1.91 trillion, just a tad lower than INR 1.96 trillion on Monday. The deficit was little changed on Tuesday due to no significant inflows or outflows, dealers said.  

OUTLOOK

* On Thursday, the one-day call money rate may open above the RBI's repo rate of 6.25% due to the 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.

* The RBI will conduct an overnight variable rate repo auction for INR 2.75 trillion from 1000-1030 IST. 

CALL RATE

5.50%--Wednesday's close for one-day loans

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

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

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Above repo on firm demand for funds as liquidity remains tight
 

MUMBAI – The interbank call money rate was above the repo rate of 6.25% due to demand for funds from banks in early trade as the liquidity deficit on Tuesday remained near the same level as on Monday, dealers said. The one-day call rate was at 6.40%, higher than Tuesday's close of 6.33%. 

The weighted average call rate was at 6.39% at 1015 IST, compared with 6.29% at a similar time on Tuesday. The weighted average rate in the larger tri-party repo market--which includes mutual funds--was 6.25% compared to 6.29% on Tuesday.

On Tuesday, the net liquidity injected by the RBI--a proxy for systemic liquidity conditions--was at INR 1.91 trillion, just a tad lower than INR 1.96 trillion on Monday. The net liquidity injected had fallen to as low as INR 382.16 billion on Feb. 4. Dealers said liquidity was largely unchanged due to lack of any major inflows or outflows. 
 

However, going forward, the liqudity deficit is expected to widen further on account of the Reserve Bank of India's dollar sales in the foreign exchange market. The RBI has sold dollars heavily this week in an attempt to protect the rupee. 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 the spot market on Monday and Tuesday. At the current exchange rate, this equals roughly INR 1.3 trillion.

"We will definitely see the impact of the dollar sales today (Wednesday) and tomorrow (Thursday) as a lot of money will flow out of the system. The VRR will see good demand because of this," a dealer at a state-owned bank said. 

At the overnight variable rate repo operation, to be held at 1000-1030 IST for a notified amount of INR 2.50 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 outflows of INR 173.44 billion largely due to payment for state bonds. 

* Reversal of overnight variable rate repo tender will drain INR 2.00 trillion from the banking system.

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

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

Edited by Saji George Titus

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