Money market rates shoot up in morning, but ease at close

Money market rates shoot up in morning; but ease at close

Money market rates shot up on Tuesday morning after RBI took steps to curb rupee volatility by tightening liquidity. The interest rates on commercial paper and certificates of deposits also hardened to rule close to the base rate of banks. Short-term rates eased at close on the back of easing of pressures. According to treasury executives, this was the situation (hardening) before the restrictions came into effect. They said the pressure on rates may intensify once curbs become operational.

The short-term lending rates rose sharply by 100-200 basis points on Tuesday morning. The weighted average rate in NDS (negotiated dealing system) call market was 8.54 per cent up from Monday's 7.21 per cent, according to Clearing Corporation of India Ltd (CCIL) data.

Sensing the need to stay liquid when restrictions on borrowing come into play, banks placed huge demand (Rs 2,16,350 crore) at RBI's liquidity window.

As the day (Tuesday) progressed, the liquidity conditions changed. Once money is hand, it was a challenge for them to deploy. This pushed the market repo and CBLO (and collateralised borrowing and lending obligation) rates down. "After raising funds from RBI at LAF (liquidity adjustment facility), they had to deploy the money," said a treasury executive with an associate bank of the State Bank of India.

The rate in CBLO segment, which had touched 9 per cent mark on Tuesday morning, crashed to a low of 0.1 per cent. Market repo rate, too, which had hit a high of 9.25 per cent, fell to 3.0 per cent level at close, CCIL data showed.