Indian cash rates inched up in afternoon trade on Wednesday as demand for funds remained strong in the first week of the reporting fortnight.
Concerns over cash crunch persisted despite the central bank's liquidity support measures announced on Tuesday.
At 1 p.m., the one-day inter-bank cash rate was at 7.20/30 percent, compared with Tuesday's close of 7.10/7.15 percent. It moved in the 7.00-7.30 percent band so far in trade.
The Reserve Bank of India (RBI) on Tuesday reintroduced twin liquidity adjustment facilities and relaxed statutory liqudiity ratio, but unlike the previous time, did not announce any open market purchase (OMO) of bonds.
"These measures will not help in reducing the liquidity deficit. These are only measures to comfort the market. To really bring down cash stress levels, RBI needs to conduct OMO," said a dealer at a private bank.
Banks borrowed 710.2 billion rupees at the central bank's morning repo compared with total 1.18 trillion rupees at the twin auctions on Tuesday.
In its policy review earlier this month, the RBI had said that it was "OK" with a cash deficit or surplus of up to about 500 billion rupees.
"If they want to bring the liquidity deficit to around 500 billion rupees, they need to infuse cash. The current measures won't be enough," said a treasurer at a foreign bank.
Dealers said many banks were doing arbitrage deals by borrowing from the RBI's repo window and lending at higher rate in call.
"Since SLR is skewed, those who have excess SLR are able to do this arbitrage while rest are forced to borrow at over 100 basis point spread over repo rate," said the private bank dealer.
The weighted average rate in the call money market was 7.17 percent and that in the collateralised borrowing and lending obligation (CBLO) market was 6.24 percent.
Volumes in the call market were a heavy 129.10 billion rupees, while in CBLO it was 230.44 billion rupees.
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