March 20, 2012 / 12:03 PM / 5 years ago

Indian cash rate rises as supply stays tight

MUMBAI, March 20 (Reuters) - The Indian overnight cash rate
rose on Tuesday due to a cash shortfall in the banking system
after local companies paid advance taxes. Subdued demand for
funds, however, kept a lid on the rates, traders said.	
    Rush for funds is typically lower in the second week of the
two-week reserve reporting cycle.	
    Most banks must have maintained higher-than-necessary
reserve requirements last week, expecting the outflows and also
to reduce exposure to any volatility this week.	
    The one-day call rate ended at 8.95/9.05 percent,
compared with 8.75/8.80 on Monday.	
    "Rates will hover around these levels until next week unless
there is some really big unforeseen hit on the system," said a
trader with a large state-run bank.	
    Most traders concur with this view since the tax outflows
are expected to return next week in the form of government
spending for employee salaries and subsidy payments.	
    The cash infused through a cut in banks' cash reserve ratio,
or the share of deposits banks must hold with the central bank
in cash, also deflected the 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 ($9.52 billion) into
the banking system. 	
    Banks borrowed 1.50 trillion rupees from the central bank's
repo counter under the liquidity adjustment facility on Tuesday,
lower from 1.60 trillion on Monday.	
    Volume in the call money market was 207.41 billion rupees,
compared with 275.04 billion rupees on Monday. The weighted
average rate was steady at 8.95 percent.	
    Volume in the collateralised borrowing and lending
obligation (CBLO) market was 424.88 billion rupees, lower than
510.48 billion rupees on Monday, with a weighted average rate of
8.60 percent, from 8.54 percent in the previous session.	
    In the inter-bank repo market, volume was 129.02 billion
rupees, from 117.60 billion rupees in the previous session.	
    ($1 = 50.4 rupees)	
	
 (Reporting by Aditya Phatak; Editing by Rajesh Pandathil)

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