Year-end pressure to keep call money rate up

The call money rate that has been hovering above seven per cent levels for the past week on tight liquidity due to advance tax outflows is expected to move further up as year-end pressures on banks intensify.

“There are some liquidity constraints in the system,” said V K Khanna, general manager, Union Bank of India.

Call money ended the week at six per cent, according to the Clearing Corporation of India. It had touched a high of 7.9 per cent a day before the announcement Reserve Bank of India’s monetary and credit policy review, as banks scrambled to pick up funds in anticipation of a rate increase.

“Typically, towards the financial year end, call money rates shoot up as banks make their year-end adjustments,” said the treasury official of a public sector bank.

Banks borrowed from RBI’s repo window to the tune of Rs 1.45 lakh crore on Thursday as well as on Friday. The average daily borrowings for the week were around Rs 1 lakh crore.

“The demand was coming from banks that were yet to meet their yearly targets but running short on securities to borrow from RBI and, hence, were dependent on banks that have liquidity in surplus of the Statutory Liquidity Ratio,” said the a top official of a public sector bank, who did not wished to be named.

Also, it was the first week of a new reporting fortnight, when banks typically borrow to meet their regulatory fortnightly obligations. Hence, the drawdown from the repo window may come off Rs 1-lakh crore levels next week. However, it will still be higher than RBI’s comfort zone of Rs 50,000 crore, that is one per cent of net demand and time liabilities. Call rates are expected to cool off only in April, as government spending increases. “The call money rates should come off seven per cent, closer to the repo rate in April,” said the treasury head of a large public sector bank.