The first round of 175 basis points cut in banks’ cash reserve ratio (CRR) takes effect tomorrow releasing Rs 6,000 crore of liquidity into the banking system even as the overnight call money rates touched 18 per cent today—the highest ever in the current financial year. It touched the earlier intra-day high of 15 per cent on October 16.

A dealer said: “High call money rate is a temporary phenomenon and was because of undercoverage of cash reserve requirement by the commercial banks. Overnight rates should come down with the start of new reporting fortnight and additional liquidity coming to the system with the first round of CRR cut taking effect tomorrow.”

Banks’ CRR will now be pegged at 5.75 per cent, down from 7.5 per cent. The second round of CRR cut (by another 25 basis points to 5.50 per cent) will be effective on December 29, releasing another Rs 2,000 crore.

Dealers are expecting the yields of government paper to come down further following the CRR cut.

The 10-year paper yield is likely to dip to 8.70 per cent by the end of the next week. The yield on the benchmark bond dipped to 8.77 per cent—a new low, today.

Dealers are expecting a cut in the repo and the reverse repo rate following the CRR cut taking effect. Said the treasury head of a private sector bank said: “With more fund infusion in the system and the cut in benchmark bank rate, it is logical that the repo rate should be cut by 50 basis points to six per cent.”