To reduce volatility in interest rates in the overnight money market on reporting Friday's, the Reserve Bank of India has decided to enable banks to tap its repo window for the second time to tide over liquidity crunch.
The RBI, on Friday, said it is re-introducing the additional repo facility (whereby banks can borrow from RBI) between 4.30 P.M. and 5.00 P.M. on reporting Fridays, with effect from February 10, 2012, till further notice.
Volatility
“Overnight money market rates become volatile on reporting Friday's.
“For example, today, banks' could borrow under the CBLO (collateralised borrowing and lending obligation) mechanism at 5 per cent while the call money market rate had shot up to 9.50 per cent.
“The RBI's move will curtail this interest rate volatility,” said Mr E. Srinivasa Reddy, Dealer, Andhra Bank.
