Soaring call rates, repo borrowing signal tighter liquidity again.
When Finance Minister P Chidambaram meets public sector bank chiefs on Tuesday he will have additional talking points this time.
According to the agenda circulated for the meeting, Chidambaram wants to discuss the impact of the recent liquidity enhancement measures, credit flow to corporate India, non-banking finance companies, mutual funds and housing finance companies.
He also wants to assess credit growth and the medium-term capital requirements of public sector banks, which account for over 70 per cent of India’s banking business.
| FOREX RESERVES DWINDLE | ||
|
Rs crore |
$ billion | |
| Sep. 26, ‘08 | 13,52,622 | 291.82 |
| Oct. 03, ‘08 | 13,31,166 | 283.94 |
| Oct. 10, ‘08 | 13,33,424 | 274.00 |
| Oct. 17, ‘08 | 13,31,787 | 273.89 |
| Oct. 24, ‘08 | 12,88,201 | 258.42 |
| CALL JUMPS (%) | |
| Open | 14.00 |
| High | 21.00 |
| Low | 6.25 |
| Close | 17.00 |
The meeting comes at a time when the liquidity has tightened again after a fortnight of comfort. Today, call rates shot up to 21 per cent, against 11.25 per cent on Wednesday, as banks raised funds to meet statutory reserve requirements in a week marked by fewer working days.
Call rates had eased to 6 per cent last week as RBI cut the cash reserve ratio by 250 basis points, in addition to taking a host of other steps to infuse liquidity.
The outflow of around Rs 8,400 crore towards payments for Treasury bills sold on Wednesday also exerted pressure on interbank cash supply. The inflow from redemption of T-bills, that usually more than offsets the outflow, fell short by Rs 2,900 crore.
In addition, banks borrowed Rs 69,280 crore through RBI’s repo window compared with Rs 56,095 crore on Wednesday.
Meanwhile, RBI’s repeated intervention in the foreign exchange market to check a steep depreciation of the rupee has also sucked out liquidity. Heavy RBI intervention can be seen from the fact that the country’s foreign exchange reserves dipped by $15.4 billion for the week ending October 24 to touch $258.4 billion, the steepest weekly fall.
| ... AND BANKS BORROW HEAVILY FROM RBI (Liquidity Adjustment Facility) | |
| Date |
(Rs crore) |
| Oct 1 ‘08 | -91720 |
| Oct 3 ‘08 | -90725 |
| Oct 6 ‘08 | -65500 |
| Oct 7 ‘08 | -59635 |
| Oct 8 ‘08 | -80035 |
| Oct 10 ‘08 | -91500 |
| Oct 13 ‘08 | -55440 |
| Oct 14 ‘08 | -22301 |
| Oct 15 ‘08 | -55340 |
| Oct 16 ‘08 | -4130 |
| Oct 17 ‘08 | -1635 |
| Oct 20 ‘08 | 24895 |
| Oct 22 ‘08 | 36295 |
| Oct 23 ‘08 | 38650 |
| Oct 24 ‘08 | 19605 |
| Oct 27 ‘08 | -42770 |
| Oct 29 ‘08 | -56095 |
|
Oct 31 ‘08 | |
Sustained RBI intervention has seen foreign exchange reserves fall $33.4 billion between September 26 and October 24. Forex reserves peaked to $316.17 billion for the week ending May 23, 2008, but have been falling consistently since then. The fall in reserves is also partly due to the revaluation of the US dollar against other international currencies.
Today, the Indian currency snapped an 11-day losing streak to close 0.4 per cent higher at 49.46 against the US dollar, as compared with Wednesday’s close of 49.67. It rose as the stock markets gained on the expectation that foreign institutional investors will resume purchases. When the Indian markets were falling last week, the rupee went past the 50 mark against the greenback.
