The Hindu Business Line : Call rates plunge to 10-year low

Mumbai May 31 With the system awash with surplus cash, the inter-bank call rates dipped to a 10-year low of 0.50 - 0.75 per cent on Thursday, even lower than Wednesday's 1 - 1.25 per cent.

"There is about Rs 25,00035,000 crore of surplus cash in the system. Unprecedented inflows into the market, coupled with the mega initial public offerings of DLF, ICICI Bank coming soon, will infuse more cash in the system, keeping call rates at the lower levels," said Mr N. Natarajan, Vice-President and Head of Trading, FX and Money Market, IndusInd Bank.

The RBI intervention in the forex market to rein in the appreciating rupee has also flooded the system with rupees.

The redemption of about Rs 20,000 crore from the government securities on Monday has also contributed to the surge in excess cash, said dealers.

In March-April, scarcity of cash had pushed call rates to as high as 40 - 50 per cent.

"Volatile call rates do not reflect well in a stable economy," said a dealer at a private bank, adding that the ideal situation would be for call to remain between the key rates of reverse repo and repo.

The central bank has maintained in its review of the monetary policy that liquidity management would be a priority, to contain inflation. Market participants are hence wary of RBI action by way of another hike in the Cash Reserve Ratio or a Market Stabilisation Auction for sucking out excess cash.

"The RBI should temporarily lift the reverse repo ceiling (the central bank currently pumps out up to Rs 3,000 crore from the system on a daily basis) and try to accept the total bids placed with it to ease the situation," Mr Natarajan added.

Banks placed bids worth Rs 72,290 crore with the RBI under the two auctions of the Liquidity Adjustment Facility through the reverse repo window, while the central bank accepted Rs 2,992 crore. The RBI did not lend through the repo window.

Auction

In the first one - day reverse repo auction, RBI received 32 bids for Rs 37,020 crore while it accepted Rs 1,995 crore. In the second one - day reverse repo auction, the apex bank received 35 bids for Rs 35,270 crore while it accepted Rs 997 crore. There were no repo bids in the first and second one - day auctions.

The CBLO market saw 339 trades aggregating Rs 29,992.10 crore in the 0.10 per cent - 0.50 per cent range.

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