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Informist, Thursday, Feb. 20, 2025

By Kabir Sharma

MUMBAI – The weighted average call rate was again above the repo rate on Thursday as borrowing costs remained elevated due to payments for goods and services tax and funding requirements for reporting Friday, dealers said. The weighted average rate for the call market was unchanged from Tuesday's 6.35%, although the same for the larger tri-party repo market--which includes mutual funds--eased to 6.20% from 6.25% Tuesday.

Liquidity conditions are expected to tighten further in the coming days, with outflows for GST payments seen at INR 1.50 trillion to INR 1.70 trillion. Of this, around INR 800 billion is estimated to have left the system on Thursday, dealers said. Banks were also in need of funds to meet Friday's reporting requirements. As per prudential norms, banks are required to maintain a Cash Reserve Ratio with the central bank averaged across the fortnight. For the fortnight ending Feb. 21, banks are supposed to maintain an average daily cash reserve requirement of INR 9.12 trillion with the RBI. As on Wednesday, the cash balance was INR 8.86 trillion, as per RBI data.

On Thursday, a total of INR 1.33 trillion was borrowed at the two overnight variable rate repo auctions conducted by the RBI. "The two VRRs (variable rate repo auctions) helped ease rates and overall market activity. TREPS fell after the first auction and that's why there was not enough demand for the second one," a dealer at a state-owned bank said.

The RBI announced a second overnight auction for INR 500.00 billion after the first tender for INR 1.00 trillion was oversubscribed. As part of its efforts to infuse durable liquidity, the central bank bought INR 400.00 billion of government bonds through the open market auction on Thursday. Including its Cash Reserve Ratio cut from December, long-term repos, dollar-rupee buy-sell swaps, and open market purchases of gilts, the RBI has over the last two months or so infused more than INR 4.00 trillion of durable liquidity into the banking system.

OUTLOOK

* On Friday, the three-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%.

* RBI will conduct a three-day and a 14-day variable rate repo auction for a total of INR 2.50 trillion. The RBI will also conduct a 45-day variable rate repo auction for INR 750.00 billion. 

CALL RATE

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

6.45%--Thursday's open for one-day loans

6.35%--Tuesday's close for two-day loans

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Above repo on firm demand amid GST outflows; VRR auction eyed

MUMBAI – The interbank call money rate was above the Reserve Bank of India's repo rate of 6.25% on Thursday due to demand for funds from banks amid outflows for goods and services tax, dealers said. At 0940 IST, the one-day call rate was at 6.35%, unchanged from Tuesday for two-day loans. Money markets were shut on Wednesday for Chhatrapati Shivaji Maharaj Jayanti.

The weighted average call money rate was 6.43% at 0940 IST, against 6.40% on Tuesday. Meanwhile, the weighted average rate in the larger tri-party repo market--which includes mutual funds--was 6.25%, against 6.23% on Tuesday. 

On Tuesday, the net liquidity injected by the RBI--a proxy for the systemic liquidity deficit--narrowed slightly to INR 1.67 trillion from INR 1.81 trillion on Monday. "If you see, the banks has decreased cash balance with the central bank on Tuesday, this could have possibly led to a slight fall in deficit," a dealer at a private bank said. "It is quite difficult to ascertain the cause of such a miniscule fall."  

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 Tuesday, banks had maintained a cash balance of INR 8.97 trillion, against INR 9.06 trillion on Monday, data from the RBI showed. 

During the day, rates are expected to remain under pressure due to outflows for goods and services tax, which will drain out INR 1.5 trillion to INR 1.7 trillion over the next few days. Of this amount, INR 600 billion to INR 800 billion is expected to leave the system during the day, dealers said. "Money market rates will trade higher today (Thursday). The weighted average call rate will trade in the range of 6.00% to 6.45%, while weighted average triparty repo rate will trade in the range of 6.00% to 6.35%." 

In the light of these outflows, participation at the overnight variable rate repo auction for a notified amount of INR 1.00 trillion, which will be conducted at 1000-1030 IST, is expected to be firm, dealers said. The auction is expected to be fully subscribed, with the RBI likely to set the cut-off rate at 6.26%. 

Following are the other highlights:

* Reversal of two-day variable rate repo tender will drain INR 717.73 billion from the banking system.

* Scheduled net outflows worth INR 122.56 billion due to payments for state bonds, offset slightly by redemption of Treasury bills. 

* During the day, the call rate is seen in a range of 5.75-6.55%. (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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