With abundant cash in the system, the Reserve Bank of India (RBI) has decided to dispense with two daily liquidity adjustment facility (LAF) operations.
Instead, starting tomorrow, there will be only one LAF operation between 9.30 and 10.30 in the morning, the central bank said in a statement. The second LAF will be conducted only on reporting Fridays between 4.00 pm and 4.30 pm.
After the credit crisis intensified following the collapse of Lehman Brothers on September 16 last year, the RBI had announced that a second LAF operation would be conducted on a daily basis to deal with the tight liquidity conditions and also provide comfort to the market.
Following the host of monetary easing measures announced by the RBI since October and the lower demand for credit, liquidity conditions have eased considerably and, for nearly six weeks, banks have been consistently parking over Rs 1,00,000 crore on a daily basis with the central bank through the reverse repo window. Call rates have also stabilised around 3.25 per cent, as against the spike to over 20 per cent seen in September last year.
Today, banks parked Rs 1,52,175 crore with the central bank through the two LAF operations, as against Rs 1,44,911 crore yesterday. Given the abundant liquidity, the weighted average call rate was 3.18 per cent, compared with 3.22 per cent yesterday, according to data on the Clearing Corporation of India website.
Today, call rates hovered between 1.75 per cent and 3.30 per cent. In the collateralised borrowing and lending operations segment, tapped by primary dealers and mutual funds among others, the weighted average rate was 1.63 per cent, as against 2.71 per cent yesterday.