Call money rates may cross 9 pc due to tight liquidity:Experts

Higher demand for funds by banks to meet the fourth quarter advance tax payout later this week will strain liquidity condition in the financial system and overnight rates may move above 9 per cent, say analysts.
However, the Reserve Bank decision to conduct a 21-day term repo auction for an amount of Rs 50,000 crore on March 14, a day ahead of the advance tax payout deadline, will help banks tide over higher demand, but post that the liquidity condition will become tight, they said today.
"Yes, we will see some pressure on liqudity condition due to advance tax payout, but the Rs 50,000-crore term repo auction will provide support," Harihar Krishnamoorthy, Treasurer at FirstRand Bank, told PTI.

In the last round of the advance tax payment, due Saturday, corporates are likely to pay Rs 40,000-50,000 crore, according to market experts.
In February, the central bank had said it would conduct term repo auctions in March to address the anticipated tightening in liquidity on account of advance tax payouts.
In mid-February, RBI conducted two 28-day term repo auctions for a total amount of Rs 50,000 crore. Of this, Rs 20,000 crore will mature on March 14 and the rest Rs 30,000 crore on March 18.

The RBI said there will be no term repo auction on March 18 when the existing 28-day term repo of Rs 30,000 crore matures, which will suck out liquidity from the system.

"If RBI does not announce term repo after March 18, we are going to see liquidity tightness till the month-end," said the fixed income head of a mutual fund house.
Bankers said tight liquidity condition will push overnight rates such as collateral borrowing and lending obligation (CBLO) rate or interbank call money rate above 9 per cent.
"We will see money market rates moving towards marginal standing facility (MSF). They can go beyond 9 per cent," said Krishnamoorthy.
Since RBI has capped banks' borrowing from liquidity adjustment facility to 0.5 per cent of net demand and time liability, lenders will have to borrow from MSF (rate at which banks get money from RBI) which currently stands at 9 per cent.