Indian cash rates climb to 5-month high as liquidity remains tight

Category : NISM-Currency Derivatives

20 DEC, 2011, 02.36PM IST, REUTERS

MUMBAI: Indian overnight cash rates rose to a five-month high on Tuesday as liquidity conditions remained tight after last week's tax outflows.

Banks borrowed 1.64 trillion rupees ($30.9 billion) from the Reserve Bank of India's repo counter, just below 1.66 trillion rupees a day earlier that was the highest in nearly a year.

At 2 p.m. (0830 GMT), the one-day cash rate was at 9.45/50 per cent after hitting 9.65 per cent, a level last seen on July 15. It had closed at 9.40/9.50 per cent on Monday.

"The spread (above 9.50 pct) is very marginal and nobody is likely to borrow under the MSF (marginal standing facility) unless he is expecting to default in CRR (cash reserve ratio)," said Roy Paul, deputy general manager of treasury at Federal Bank, Mumbai.

The Reserve Bank of India introduced the MSF in May to help banks tide over a cash crunch. Banks can borrow cash under the facility from the central bank at 100 basis points above the repo rate, which currently stands at 8.50 per cent.

Traders are expecting the central bank to conduct more bond buybacks through open market operations (OMO) to tide over the cash crunch.

"The RBI should conduct more OMOs to ease the liquidity conditions," said a dealer at a foreign bank, who expects a buyback announcement later in the day.

The central bank has bought back 243.11 billion rupees of government bonds in the last few weeks to help ease tight cash conditions caused by additional government borrowing.

In September, the government increased its borrowing plan for the second half of the fiscal year to March to 2.2 trillion rupees from the budgeted 1.67 trillion rupees.

Advance tax payments by the top 100 companies in Mumbai for October-December rose 10 per cent from the same period last year, according to a government source with direct knowledge of the matter.

Traders said suspected dollar selling by the central bank in the foreign exchange market last week to halt the rupee's slide had also further tightened cash.

Call market volume was at 204.50 billion rupees, compared with 224.57 billion rupees on Monday, Clearing Corp of India data showed.

In the collateralised borrowing and lending obligation (CBLO) market, the volume was 205.54 billion rupees against a total of 306.26 billion rupees in the previous session.

The weighted average rate in the call money market was at 9.58 per cent, up from 9.25 per cent on Monday. In the CBLO market, the average rate rose to 8.74 per cent from 8.69 per cent.

In the inter-bank repo market, volumes were at 94.25 billion rupees, compared with a total of 98.77 billion on Monday. The weighted average rate was at 8.85 per cent from 8.76 per cent.

($1 = 53 Indian rupees)

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