MUMBAI: The Indian overnight cash rate eased off the day's high, but still remained at elevated levels on Monday, amid a record-high liquidity deficit, as banks jostled for funds at the start of the two-week reporting cycle.
The rates fell sharply towards the end of the session on easing demand, after touching 9.65 percent earlier.
"Liquidity squeezed by tax outflows continued to weigh and to top it, it's the start of the reporting fortnight. So banks are rushing for funds," a dealer with a foreign bank said.
The one-day call rate ended at 9.00/9.05 percent compared with Thursday's close of 9.50/9.60 percent for four-day funds. It ended at 9.00/9.05 percent in thin trade on Saturday.
Banks borrowed 1.96 trillion rupees from the central bank's repo window on Monday, compared with 1.61 trillion rupees that they borrowed on an average last week and far above the RBI's stated comfort level of 600 billion rupees.
"Government spending hasn't yet come into the banking system so the call rates have spiked. The rates will ease as spending happens after month-end," said a dealer with a private bank.
The liquidity situation is expected to improve early next month, that could see the call rates inch closer towards the repo rate of 8.50 percent.
The liquidity infused through a cut in banks' cash reserve ratio (CRR), or the share of deposits banks must hold with the central bank in cash, deflected some pressure due to the tax outflows, traders said.
The CRR cut that came into effect on March 10 is estimated to have released about 480 billion rupees into the banking system.
Volume in the call money market was 205.77 billion rupees, while the weighted average was at 9.45 percent.
Volume in the collateralised borrowing and lending obligation (CBLO) market was 42.86 billion rupees with the weighted average rate of 8.74 percent.
In the inter-bank repo market, volume was 30.04 billion rupees at the weighted average rate of 9 percent.
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