The overnight call money rate is expected to remain elevated this week, as banks have fewer working days to borrow and cover reserve needs for the fortnight ending April 6.
On Friday, the four-day call money rate closed at a three-year high of 15 per cent on lack of fund supply in the debt market. This, despite banks borrowing Rs 1.97 lakh crore from the Reserve Bank of India through two repo auctions under the Liquidity Adjustment Facility (LAF). Banks borrowed Rs 35,585 crore in the special LAF conducted on Saturday.
“The spike was due to year-end pressure on top of high systemic liquidity deficit,” said a senior treasury official of a large public sector bank.
Banks and money markets will remain shut on Monday, Thursday and Friday due to their yearly closing, Mahavir Jayanti and Good Friday, respectively. This leaves just two working days to cover reserve needs for the rest of the fortnight.
The official expects call rate to stay around 10 per cent this week.
As per norms, banks must keep 4.75 per cent of net demand and time liabilities with RBI as cash reserves. Banks must also ensure that 80 per cent of the average requirement is met with on a daily basis. This gives banks room to adjust to money market conditions.
Last week, banks borrowed between Rs 1.6-1.97 lakh crore each day from RBI at repo rate of 8.5 per cent. Banks also tapped the marginal standing facility window to borrow total Rs 5430 crore at 9.5 per cent from Monday-Thursday. Banks are believed to have used the additional window on Friday also.
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Liquidity deficit has been way above RBI's comfort level of one per cent of net demand and time liabilities or Rs 60,000 crore despite reduction in cash reserve ratio by 125bps since January 2012.
The pressure on liquidity is likely to persist as we enter the new financial year on account of heavy government borrowing. On Wednesday, RBI will auction Rs 18,000 crore of dated government securities. Market borrowing has been pegged at Rs 5.69 lakh crore for the current financial year as compared to Rs 5.1 lakh crore raised in the previous financial year.
On Friday, RBI purchased Rs 4528 crore of illiquid government securities against the notified Rs 10,000 crore via Open Market Operations. Markets said the largely unsuccessful OMO auction may not help ease liquidity pressure though it helped to soothe bond yields. The 10-year benchmark government bond yields had touched 8.63 per cent on announcement of Rs 3.7 lakh crore or 65 per cent of the year's total borrowing in the first half itself.