The liquidity in the banking system is expected to tighten considerably after corporates pay their advance tax estimated to be around Rs300-400 billion.
Indian cash rates were largely steady on Wednesday as demand from banks remained mostly unchanged, but traders expect the rates to go up by Friday on the back of corporates' advance tax payments and likely rate action by the central bank.
"Today we are unlikely to see a spike in cash rate as banks have borrowed more from the Reserve Bank's liquidity adjustment facility," a trader with a private bank said. "Also, a large part of the advance tax outflows will happen tomorrow. So I don't see much pressure on the cash rates today," he said.
Banks borrowed Rs602.50 billion from the central bank's repo auction on Wednesday, compared with Rs333 billion on Tuesday. At 1:20 p.m., the one-day inter-bank cash rate was at 7.3540%, compared with 7.3040% at previous close.
The liquidity in the banking system is expected to tighten considerably after corporates pay their advance tax estimated to be around Rs300-400 billion, and traders did not rule out some banks borrowing again from the central bank via the marginal standing facility (MSF).
The cash rates are also expected to go up tracking the central bank's rate action on Thursday, a trader with a state-run bank said.
India's central bank is expected to raise its policy interest rate by a total of 75 basis points for the rest of 2011, including a 25 basis point increase on Thursday, unchanged from forecasts in a May 3 poll, a Reuters poll found on Tuesday.
Volumes in the one-day call market were at Rs108.92 billion against a total of Rs98.65 billion on Tuesday, Clearing Corp of India data showed. In the CBLO market, volumes were at Rs382.38 billion, compared with Rs614.10 billion on Tuesday.
Weighted average rate in the call money market was 7.40%, against Tuesday's 7.32%, while the weighted average rate in the CBLO market was at 7.21% against 7.27% previously.
In the inter-bank repo market, volumes were at Rs116.65 billion versus Rs176.12 billion on Tuesday, and the weighted average rate was at 7.27% from 7.23%.
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