Overnight rates near repo level ahead of advance tax deadline

Despite the approaching deadline for the first instalment of corporate advance tax, overnight rates traded near the repo rate of eight per cent due to liquidity infusion by the Reserve Bank of India (RBI) through term repos. Even RBI had said earlier that they wanted overnight rates to hug the repo rate.

In the bi-monthly monetary policy review held earlier this month, RBI had said the central bank shall continue to provide liquidity under 7-day and 14-day term repos of up to 0.75 per cent of net demand and time liabilities (NDTL) of the banking system. Keeping that in mind, on Friday RBI conducted a 14-day term repo and infused Rs 61,003 crore. The cut-off rate was 8.14 per cent while the weighted average rate was 8.26 per cent.

"Due to RBI's measures of infusing liquidity, short-term rates have not moved up much this time despite advance tax outflow. Banks are also not raising much of funds through overnight borrowing," said Arvind Konar, head of fixed income, Almondz Global Securities.

The weighted average call money rate has been in the range of 7.83 to 8.38 per cent this month while the weighted average collateralised borrowing and lending obligation (CBLO) rate has hovered in the range of 7.34 per cent to 8.27 per cent.

"RBI is giving enough support in terms of term-repo due to which overnight rates are not that high. The term repo held today (Friday) was enough for the market to take care of short-term liquidity gap. Overnight should hover around 8-8.25 per cent till the Budget," said Anoop Verma, vice-president for treasury at Development Credit Bank.

Typically during advance tax outflow, about Rs 50,000-60,000 crore flows out of the system. The advance tax deadline is on Sunday.