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Informist, Monday, Feb. 17, 2025

By Kabir Sharma

MUMBAI – The interbank call money rate ended at the Reserve Bank of India's standing deposit facility rate of 6.00% on Monday as demand for funds from banks eased towards the end of trade, dealers said. The one-day call rate ended at 6.00% against 5.80% on Saturday for two-day loans.

The weighted average call money rate ended at 6.34%, lower than 6.38% on Friday. The weighted average rate in the larger tri-party repo market, in which mutual funds are allowed to participate, closed at 6.16%, against 6.32% on Friday. Dealers said money market rates finally cooled off as liquidity conditions in the banking system eased due to continued measures taken by the RBI. Continued dollar sales by the central bank in the foreign exchange market was the main reason behind the excess deficit in the first place, they said.

The Indian central bank likely sold nearly $20 billion in the spot market last week--draining close to INR 1.75 trillion of rupee liquidity--to prop up the rupee against the dollar, according to market participants. The net liquidity injected by the RBI--a proxy for the systemic liquidity deficit--narrowed to INR 1.80 trillion on Sunday from INR 2.14 trillion on Friday and INR 2.42 trillion on Thursday.

The two variable rate repo auctions held by the RBI on Monday saw varied responses. The overnight auction was oversubscribed with bids worth INR 1.35 trillion against the notified amount of INR 1.00 trillion--which the RBI accepted. However, at the four-day operation the central bank only got bids for INR 574.13 billion against the notified amount of INR 750.00 billion.  

"The four-day VRR did not see full subscription because the central bank is already providing overnight liquidity support so maybe banks must have held back because of this," a dealer at a state-owned bank said. "Also, this Friday is reporting Friday along with outflow for GST (goods and service tax payments). The reversal of this tender will add further pressure on the liquidity."

Following are the other highlights:
* Net outflows of INR 382.57 billion on account of payment for gilts.

* Reversal of three-day variable rate repo tender drained INR 1.50 trillion from the banking system.

OUTLOOK

* On Tuesday, the one-day call rate may open around the repo rate on demand for funds from banks.

* During the day, the call rate is seen in the range of 5.75%-6.40%.

CALL RATE

6.00%--Monday's close for one-day loans

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

5.80%--Saturday's close for two-day loans

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Above repo rate on demand for funds; liquidity deficit narrows

MUMBAI – The interbank call money rate was above the Reserve Bank of India's repo rate of 6.25% due to demand for funds from banks in early trade to meet their cash reserve requirements, dealers said. At 0945 IST, the one-day call rate was at 6.35% against 5.80% on Saturday for two-day loans.  

The weighted average call money rate was 6.40% at 0945 IST, against 6.45% on Friday at the same time. Meanwhile, the weighted average rate in the larger tri-party repo market--which includes mutual funds--was 6.29% at the same time Monday, against 6.34% on Friday.

On Friday, the net liquidity injected by the RBI--a proxy for the systemic liquidity deficit--narrowed to INR 2.14 trillion from INR 2.42 trillion on Thursday. Liquidity deficit narrowed on account of inflows worth INR 400 billion on purchase of gilts an open market operations auction conducted by the RBI on Thursday. The settlement of the auction took place on Friday, dealers said. 

On Friday, banks also increased the funds parked with the central bank by over INR 500 billion. 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 Friday, banks had maintained a cash balance of INR 9.60 trillion against INR 9.07 trillion Thursday, data from the RBI showed. 

During the day, the central bank will conduct two variable rate repo operations. The overnight repo operation, which will be held at 1000-1030 IST for INR 1 trillion, is expected to see full subscription with RBI likely setting a cut-off rate of 6.26%. Meanwhile, the four-day variable rate repo operation, which will be held for INR 750 billion between 1100 IST and 1130 IST, is also expected to see full subscription at a cut-off rate of 6.28%.

"The four-day auction might see good demand because of GST (goods and services tax) outflows which will start from Thursday," a dealer at a state-owned bank said. "These outflows will easily drain around INR 1.6 trillion to INR 1.7 trillion from the system."  

Following are the other highlights:
* Net outflows of INR 382.57 billion are scheduled on account of payment for gilts.

* Reversal of three-day variable rate repo tender will drain INR 1.50 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 Ashish Shirke

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