Normal liquidity back in system

After remaining under pressure towards the close of the financial year, liquidity conditions in the inter-bank market improved on the first full working day of the new financial year.

Banks on Monday parked Rs 49,415 crore with the Reserve Bank of India’s (RBI’s) reverse repo window. Last week, amounts parked with RBI had dipped below Rs 10,000 crore. In fact, some banks even sought funds to bridge the gaps ahead of March 31, the last day of 2009-10, dealers said.

Also, the call rate moved between 2.0 per cent and 3.60 per cent, indicating adequate resource in the system. The call money rate recovered from the day's low after some banks scrambled to cover unexpected liquidity mismatches.

In the last week of the financial year, it seems people covered most of their reserve needs, due to which demand must have ebbed on Monday, said a dealer with a state-owned bank.

Intra-day, interbank money rate fell to as low as 2.00 per cent after opening at 3.60 per cent, according to data on Clearing Corp of India's website.

A senior Bank of Baroda treasury official said there was no concern over resources. The first auction for the government borrowing of Rs 12,000 crore is on April 9. RBI is expected to maintain adequate liquidity in the system to support the huge borrowing programme. The government has lined up auctions to raise Rs 2,87,000 crore in April-September 2010.

The overnight rate is expected to open firm on Tuesday, near 3.50 per cent, since lenders may be reluctant to offer rates lower than RBI's reverse repo rate of 3.50 per cent until the central bank closes bidding for its reverse repo counter.