Call rates fall due to liquidity push

The central bank conducts three term repos in July, infusing Rs 76,000 cr

After call money rates rose sharply earlier this month due to tax outflows, the rates have been falling due to liquidity infusion by the Reserve Bank of India (RBI).

Call rates are now trading below the repo rate of eight per cent. On Thursday, the weighted average call money rate stood at 7.81 per cent compared with 7.67 per cent on Wednesday. The weighted average call rate was at 8.94 per cent on July 9 - the highest so far this month. During intra-day trades, the rates have even breached nine per cent on couple of occasions.

The Reserve Bank has so far conducted three term repos in July and infused about Rs 76,000 crore. The easing in call rates was seen since Wednesday. The expectation is that more term repo auctions will be conducted if call money rates hover near nine per cent.

"Call rates eased due to term repo auctions by RBI. RBI may conduct another Rs 20,000 crore term repo auction on Friday. If overnight rates tighten, then RBI will keep doing term repo auctions," said Debendra Kumar Dash, associate vice-president (treasury), Development Credit Bank.

"Call rates were so volatile earlier this month because there was tax outflow from the system and that amount is yet to be spent by the government. But due to tightness in liquidity RBI did announce term repos. The volatility in call rates is temporary and not a matter of concern," said the head of treasury of a large state-run bank.

According to dealers, the impact of lower call rates will also be seen in the rates of short-term instruments like commercial papers and certificates of deposit in the days to come.