The surge in demand for funds on the last day of the reporting fortnight and long weekend pushed inter-bank call rate to two-month high of 10 per cent.
Banks borrowed over Rs 1,88,000 crore from the Reserve Bank of India at liquidity adjustment facility in two sessions.
They had borrowed over Rs 1, 47,000 crore yesterday.
Treasury officials said the demand-supply mismatch is a regular feature in call money market this time of the year, with liquidity squeezed by tax outflows.
There was more pressure on liquidity due to Gudi Padava holiday on Friday.
The four-day call rate touched 10 per cent, highest since January 13.
It ended at 8.75/8.80 per cent yesterday for one-day funds.
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In another development, RBI deputy governor K C Chakrabarty on Thursday said, “Liquidity cannot be ample when you're fighting inflation. We cannot have easy liquidity. Liquidity will remain tight till the inflation is very, very low.”
Rising oil prices pose added threat to the domestic authorities as it will fuel inflation. “Any commodity price rise puts pressure on inflation.”
The deficit has increased due to advance tax outflows and the usual frontloading of cash balances by banks. The deficit in the system persists above the comfort level of the Reserve Bank of India.
The spike is caused by a temporary mismatch of funds in the banking system. Deals are being struck at higher rates for last minute borrowing by few banks, said a treasury head with small private bank.
As a step to ease pressure on fund availability RBI has cut CRR in two tranches since late January 2012. It cut the cash reserve ratio by a hefty 125 basis points to 4.75 per cent, releasing as much as Rs 80,000 crore into the system. Another reason for reducing CRR was to ensure smooth flow of credit to productive sectors of the economy.
It has also conducted open market operations by buying back government securities worth over Rs 1,25,000 crore between November 2011 and Early March 2012.