Year-end tightness raises call money to 7.25%
The Reserve Bank of India (RBI) on Tuesday infused Rs 5,750 crore into the banking system through the reverse repo (repurchase) route even as a sudden tightness in liquidity saw overnight call money rates shooting up to 7.25 per cent.
The repo window did not attract any bid. The RBI draws out liquidity though the repo route and pumps money into the system through reverse repos.
On Monday, Rs 3,340 crore was pumped in through the reverse repo route, and the repo window saw a single bid of Rs 150 crore, which the RBI rejected.
Normally, the repo rate (5 per cent) acts as the floor for call money rates. The rate of reverse repo is 2 percentage points higher than the repo rate. With liquidity tightening, overnight call rates have been hovering at the upper band, around the reverse repo rate.
Money market dealers have attributed the sudden tightness in liquidity to various factors, but not to the Iraq war.
