MUMBAI: Overnight cash rates marginally eased on Friday as the rush for funds waned and cash showed signs of improvement following a cash reserve ratio cut for banks that came into effect on Saturday.
Traders also expect cash rates to fall next week as the central bank's purchase of government debt via open market operation (OMO) scheduled for Friday will further reduce the cash deficit.
At 2:50 p.m., the one-day cash rate was at 8.70/75 percent, lower than Thursday's close of 8.75/85 percent.
"Liquidity position has improved a tad after CRR funds release and OMO funds are expected to come in supporting the cash rates," a dealer with a state-run bank said.
Demand is typically strong in the first week of the two-week reporting cycle as most banks prefer to meet mandated reserve needs as early as possible to reduce exposure to likely volatility in the latter half of the period.
The Reserve Bank of India has offered to buy up to 100 billion Indian rupees ($2.03 billion) of 8.24 percent 2018 bonds, 8.20 percent 2022 bonds, 9.15 percent 2024 bonds and 8.28 percent 2032 bonds on Friday.
The central bank has bought about 719 billion rupees of bonds via OMOs since late November in a bid to offset the supply glut created by the government's massive borrowing plan for 2011/12.
The 50-basis point cut in the CRR to 5.5 percent is estimated to have released around 320 billion rupees into the banking system. The CRR is the share of deposits banks must hold as cash with the central bank.
Banks borrowed 1.13 trillion rupees from the RBI's repo auction under liquidity adjustment facility on Friday, down from
1.20 trillion rupees on Thursday. Volume in the call money market was 95.68 billion rupees, compared with Thursday's volume of 91.69 billion, data from the Clearing Corp of India showed.
In the collateralised borrowing and lending obligation (CBLO) market, volume was 371.54 billion rupees, compared with Thursday's total volume of 390.17 billion rupees.
The weighted average rate in the call money market was 8.89 percent, up from 8.96 percent previously.
In the CBLO market, the average rate was 8.92 percent, higher from 8.41 percent.
In the inter-bank repo market, volume was 95.68 billion rupees, compared with 100.8 billion rupees on Thursday. ($1 = 49.1550 Indian rupees)
Source : economictimes.indiatimes.com