Cash rate ends higher on robust demand

MUMBAI: The Indian overnight cash rate ended higher on Monday as tight liquidity forced banks to borrow more at the beginning of the second week of the two-week reserves reporting cycle.

The week is truncated due to a holiday on Thursday and trading desks are likely to be thinly staffed on Friday. The one-day call rate settled at 8.75/8.80 percent, up from 8.40/8.45 percent on Friday for three-day loans. The cash rate settled at 8.90/9.00 percent for two-day loans on Saturday in thin trade.

During the day, the rate had eased to 8.40 percent on waning demand, but climbed later when banks rushed to cover mandated reserve needs.

Some traders said the overnight cash rate could rise to double digits around mid-March when companies pull cash from banks to make advance tax payments.

Banks borrowed 1.11 trillion rupees ($22.29 billion) from the Reserve Bank of India's repo counter on Monday, sharply above the central bank's indicated comfort level of 600 billion rupees. Last week, repo borrowings touched a record 1.92 trillion rupees on Thursday.

Volume in the call money market was 121.90 billion rupees, much less than Friday's 175.05 billion rupees, data from the Clearing Corp of India showed. The weighted average rate in the call money market was 8.89 percent, down from 9.08 percent.

Volume in the collateralised borrowing and lending obligation (CBLO) market was 545.40 billion rupees, compared with 438.66 billion rupees in the previous session, with a weighted average rate of 8.14 percent, down from 8.27 percent.

In the inter-bank repo market, volume slipped to 89.56 billion rupees from 99.97 billion rupees on Friday