The Hindu Business Line : Low call rates: `A case of wrong maths somewhere'

"There was surplus liquidity of around Rs 35,000-40,000 crore, but a large chunk of it has been sucked out from the system through auctions and advanced tax outflows. However, there is still a surplus of around Rs 10,000 crore," said a dealer with a private bank.

In the first one-day reverse repo auction, the RBI received 34 bids for Rs 47,805 crore while it accepted bids to the tune of Rs 1,994 crore. In the second one-day reverse repo auction, the central bank received 34 bids for Rs 32,500 crore while it accepted Rs 1,006 crore. There were no repo bids in the first and second one-day auctions.

Asked about the additional liquidity in the system, Mr Ajay Mahajan, Group President, Financial Markets, Institutions & Investment Management, Yes Bank, said: "Government has to pay to the RBI Rs 40,000 crore to buy a stake in State Bank of India. The central bank might thereby announce auctions of Treasury bills, MSS or dated securities as a part of its debt raising programme."

Asked what the RBI could do to limit liquidity, Mr Gurumurthy, Head of Trading & ALM, ING Vysya Bank, said: "At the outset, it would not be unfair to expect nothing as liquidity planning is a basic requirement and the current aberration is probably a result of wrong maths somewhere. Markets should bear the cost of day-to-day liquidity management and therefore nothing may come up."

"A little unknown to our markets but practised in some parts of the world, is the option of conducting variable rate tenders/reverse repos - where the rate is decided by bid. This would however depend on the quantum of securities available with RBI," Mr Gurumurthy added.

The CBLO market saw 236 trades aggregating Rs 24,807.50 crore in the 0.02 per cent-0.1 per cent range.

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