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Indian cash rate ends up on robust demand
March 14, 2012 / 12:21 PM / in 6 years

Indian cash rate ends up on robust demand

March 14 (Reuters) - The Indian overnight cash rate
settled higher on Wednesday, as demand for funds was strong in
the first week of the two-week reporting cycle, ahead of advance
tax payments by companies . 	
    The one-day call rate closed at 8.85/8.90 percent,
compared with 8.70/8.80 percent on Tuesday. 	
    "Banks are building up reserves before the tax payments,
because next week, the deficit in liquidity will be higher,
which could result in volatile overnight rates," said a dealer
with a large state-owned bank.	
    Bankers expect the tax outflows due by Friday to
mute the impact of liquidity infusion through a cut in banks'
cash reserve ratio (CRR).	
    Last week, the RBI announced a cut in the CRR, or the share
of deposits banks must hold with the central bank in cash, by a
sharper than expected 75 basis points. 	
    The CRR cut is estimated to have released about 480 billion
rupees ($9.6 billion) into the banking system.	
    A Reuters poll showed the RBI is widely expected to hold
interest rates steady at its policy review on Thursday ,
 a day ahead of the federal budget.
   However, data for headline inflation released earlier in the
day showed manufacturing inflation rate expanding slower than
last month, fuelling speculation in the market that the RBI may
surprise with a rate cut on Thursday. 	
    "If there is no rate cut in the policy, and no further steps
to boost liquidity, the call rate may go above 9 percent next
week," the trader said. 	
    The liquidity deficit continued, as banks queued up to
access the RBI's repo counter to borrow funds at 8.50 percent.	
    The one-day repo borrowings stood at 1.25 trillion rupees,
nearly twice the RBI's comfort level of 600 billion rupees,
indicative of an overall liquidity deficit.	
    Volume in the call money market was 166 billion rupees,
compared with 167.95 billion rupees on Tuesday. The weighted
average rate was 8.89 percent, compared with 8.87 percent.	
    Volume in the collateralised borrowing and lending
obligation (CBLO) market was 492.52 billion rupees, lower than
537 billion rupees on Tuesday, with a weighted average rate of
8.51 percent, from 8.48 percent in the previous session.	
    In the inter-bank repo market, volume was 119.74 billion
rupees, from 127.30 billion rupees in the previous session.	
  ($1 = 49.9 rupees)	
 (Reporting by Neha Arora; Editing by Aradhana Aravindan)

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