Indian cash rates surged to their highest levels in more than two years on Friday as banks borrowed heavily to meet last-minute requirements at the end of the two-week reporting cycle. The three-day cash rate ended at 8.70/80 percent, compared with Thursday's close of 8.65/70 percent for one-day loans, after touching a high of 10 percent.
Demand normally eases in the second week of a reporting cycle as banks borrow more in the first half, but tight liquidity in the system kept the rates firm in the week. "There is hardly any liquidity in the call money market because no bank is ready to lend. It seems everybody is short, and hence the rates are going up," said a trader at a state-run bank.
Banks borrowed 1.32 trillion rupees ($25.6 billion) from the Reserve Bank of India's repo counter, slightly less than Thursday's 1.37 trillion rupees but still significantly above the RBI's comfort level of around 600 billion rupees. The MSF is an additional cash supply window where banks can borrow from at 100 basis points over the repo rate by pledging excess securities. The repo rate is currently 8.50 percent. The MSF data for Friday will be released by the RBI on Monday.
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