MUMBAI: Indian cash rates rose on Tuesday, as cash supply remained tight and demand for funds strong in the first week of the two-week reporting cycle.
Banks' borrowings from the Reserve Bank of India's repo auction under the daily liquidity adjustment facility rose to 1.55 trillion rupees ($30.39 billion) from Monday's 1.48 trillion.
It is also the highest cash injection by the RBI in a single session since Dec. 23 when banks borrowed 1.73 trillion, according to Thomson Reuters data.
At 12:18 p.m. (0648 GMT), the one-day cash rate was 9.35/9.40 percent, up from Monday's close of 8.60/8.70 percent and most traders expect the rate to hover above 9 percent for rest of the session.
"There is a lot of requirement (of funds) and supply is tight, so it is not surprising that borrowings are rising at RBI repo," said a dealer with a large state-owned bank.
Demand for funds is usually strong in the first week of the two-week reporting cycle as most banks prefer to cover reserve needs as early as possible to reduce possibility of exposure to volatile rates in the second week. Despite the pressure on cash rates, most dealers do not expect any significant borrowings from the central bank's marginal standing facility (MSF).
"Using the MSF is seen like a taboo and a blot on treasury management of a bank. Hence people will try to steer away from MSF as far as possible," the dealer said.
The MSF is an additional cash supply window where banks can borrow from at 100 basis points over the repo rate by pledging excess securities. The repo rate is currently 8.50 percent.
Call money market volume was 186.31 billion rupees, compared with Monday's total of 197.97 billion rupees, data from the Clearing Corp of India showed.
In the collateralised borrowing and lending obligation (CBLO) market, volume was 127.63 billion rupees, compared from a total of 282.81 billion rupees on Monday.
The weighted average rate in the call money market was 9.10 percent, up from 8.96 percent on Monday. In the CBLO market, the average rate was 8.68 percent, up from 8.54 percent in the previous session.
In the inter-bank repo market, volume was 73.27 billion rupees, compared with Monday's 106.68 billion. The weighted average rate was 8.78 percent, up from 8.71 percent previously.
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