Cash rate eases as demand wanes in late trades

MUMBAI: The Indian overnight cash rate ended down on Tuesday as demand for funds eased in late trades after banks borrowed heavily from the Reserve Bank of India's liquidity adjustment facility.

The one-day call rate closed at 8.50/8.60 percent, lower than 9.00/9.05 percent on Monday.

Banks borrowed 1.78 trillion rupees ($35.1 billion) from the central bank's repo window on Tuesday, lower compared with 1.96 trillion rupees on Monday, but far above the RBI's stated comfort range of 600 billion rupees, indicating the extent of cash crunch in the banking system.

The liquidity situation is expected to improve early next month, on the back of government spending.

The liquidity infused through a cut in banks' cash reserve ratio ( CRR), or the share of deposits banks must hold with the central bank in cash, deflected some 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 into the banking system.

Volume in the call money market was 213.07 billion rupees, compared with 205.77 billion rupees on Monday, while the weighted average was at 9.44 percent versus 9.45 percent previously.

Volume in the collateralised borrowing and lending obligation (CBLO) market was 567.00 billion rupees, significantly higher than 42.86 billion rupees on Monday, with the weighted average rate at 7.83 percent versus 8.74 percent previously.

In the inter-bank repo market, volume was 89.90 billion rupees with the weighted average rate at 9 percent.