Call Rates Surge To 22 Pc

Mumbai: The overnight price of money (call rates) increased to 22 per cent on March 20, as banks began borrowing heavily from each other to cover shortage of funds. A few foreign banks were reportedly on the verge of defaulting on their cash reserve ratio. The strain on liquid cash also buoyed the rupee to close at 43.75 against the dollar - an 18-month high. The call rates, which were at 6-6.10 per cent on March 1, increased to 9.5-10 per cent on March 16 as advance tax outflows began taking a toll on liquidity. Banks borrowed Rs 35,250 crore via the RBI''s repo window under the liquidity adjustment facility. Higher corporate profitability has meant that the outflow at the end of the fourth quarter has been higher. The scourge of a nearly week-long closure of banks due to a strike call and the subsequent holidays has also prompted banks to cover up cash requirements. Banks do not have excess of SLR securities to borrow from the RBI via the repo window, so they are headed to the call money market. Bankers also said that the increase in CRR on December 9 and February 13 by a total of one percentage point to six per cent has drained Rs 27,500 crore from the system. To curb inflation, the RBI also put in place an enhanced market stabilisation scheme to absorb excess cash by conducting auctions of dated securities as well as Treasury bills. With inflation surging to 6.46 per cent for the week ended March 3, liquidity management has become the apex bank''s priority.