RBI absorption fails to check fund flow

MONEY MARKET ROUND-UP

Even as the market is closing towards the second tranche of hike in CRR this Friday, the banking system is having liquidity surplus. The Reserve Bank of India in its reverse repo operations sucked out around Rs 43,000 crore from the system.

The RBI absorbs excess funds through reverse repo while it infuses liquidity in times of shortage through repo. Both these operations are collateralised against sell or purchase of government securities.

Call rates at which funds are lent and borrowed from the banks closed higher at 6 per cent after falling to a low of 4.25 per cent. Since the banks had to prepare for the auction of government securities as part of the government borrowing programme and reporting fortnight, lending in the call money market was cautious.

Rates in the collateralised borrowing and borrowing market (CBLO) inched up higher at 5.20 per cent as against 4-4.5 per cent on Wednesday. Mutual funds, which are major lenders in the CBLO market, apprehended redemption from banks.

A reporting fortnight ends on Friday when the banks are required to deposit a part of their deposits mobilised over the fortnight with the RBI as a statutory requirement, which is called cash reserve ratio or CRR.

G-sec: Cautious on auction expectation

Trading in government securities was lacklustre since the banks were busy setting aside funds for the reporting fortnight and government securities auction.

According to dealers, most of the banks were booking profit in the market since trading was very aggressive in the beginning of the week.

The RBI will be auctioning two government securities