Call rates plunge as liquidity improves

At reverse repo auction, some banks parked Rs 1,015 crore with RBI at 4.75%.

Call money market rates plunged further today, to close at about 4.75 per cent, a good 1 percentage point lower than yesterday's closing of 5.4-5.6 per cent.

The improved liquidity in the market was also reflected at the central bank's reverse repo auction, with some banks parking funds to the tune of Rs 1,015 crore with the Reserve Bank of India (RBI) at 4.75 per cent. This is the rate the central bank pays for money parked with it.

Thus, for the first time in three weeks the banking system reported having surplus funds. In this period, the banking system was severely strained for liquidity and had been drawing upon the RBI's repo window for liquidity support.

Dealers reported that the banking system had received inflows of almost Rs 4,500 crore out of the RBI's intervention in the currency market and another Rs 2,300 crore from the payment of interest on gilts.

This has changed the demand-supply situation in the money market. The situation was particularly acute last week when banks had to draw down as much as Rs 16,000 crore from the RBI's repo window in a day.

Meanwhile, bond yields inched up a little on panic selling by a section of banks. Dealers said the market went down on reports that the US was expecting "imminent attacks on its facilities in New Delhi and Mumbai". Prices fell by 50 paise in the morning but recovered by 10-15 paise towards the end of the day.

The yield on the benchmark 10-year paper rose to 7.38 per cent, up from Monday's close of 7.07 per cent.