RBI infuses Rs 20,000 cr more

With the liquidity crunch continuing for the second consecutive day, the Reserve Bank of India today pumped in more than Rs 20,000 crore through its repo window. The central bank had yesterday infused a whopping Rs 17,680 crore into the domestic banking system.

In morning trade, the RBI infused around Rs 17,835 crore through the one-day repo window at 6.25 per cent. In the afternoon session, the RBI further pumped in another Rs 3,580 crore through the second liquidity adjustment facility.

It did not absorb any bids under the reverse repo window in the morning trade. However, under second liquidity adjustment facility (SLAF), it mopped up bids worth Rs 480 crore.

Call rates soared to 6.80/6.90 per cent amid tight liquidity. In fact some stray deals took place at 7.20 per cent as banks virtually scrambled to meet their risk requirements.

Liquidity is expected to worsen further as the system is likely to witness an outflow of Rs 33,000 crore on account of the redemption of State Bank of India's (SBI) India Millennium Deposits on December 29.

Traders are hopeful interest payments of Rs 10,000 crore, expected by the end of December on a special deposit scheme run for investment by India's largest pension fund, the Employees' Provident Fund, would give a boost to fund supply.

"Even the government, which is sitting on cash supplies to the tune of Rs 20,000 crore, should start spending to boost domestic liquidity," said a chief dealer at a private bank.

Liquidity has dwindled by over 99 per cent since September. The net liquidity in the banking system is just Rs 135 crore, sharply lower than the almost Rs 36,000 crore in mid-September.

MSS balances would fall by a further Rs 2,552 crore this week as more treasury-bills mature. RBI has also cancelled, for the seventh week in a row, MSS auctions this week.

The central bank has used the MSS instrument effectively to pump in funds into the national banking system. It also cancelled MSS auctions aggregating Rs 17,500 crore over the past seven weeks and yet the system continues to be gripped by a liquidity strain.

TONING UP

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• The RBI on Monday infused a whopping Rs 17,680 cr into the banking system
• Under second liquidity adjustment facility, the bank mopped up bids worth Rs 480 cr
• Call rates soared to 6.8/6.9% amid tight liquidity; some deals happened at even 7.20% as banks scrambled to meet their risk requirements