Indian overnight money rates jumped to one-month highs on Friday as banks borrowed funds before a 50 basis points increase in banks' cash reserve ratio (CRR) kicks in this weekend.
Government bond yields also rose as traders pared positions ahead of weekly inflation data due around noon (0630 GMT) and auctions of 100 billion rupees of bonds in the afternoon. At 10 am (0430 GMT) the 10-year bond yield was at 7.90 percent, up from Thursday's close of 7.88 percent.
Overnight cash rates rose above 3 percent, their highest since early July and sharply up from Thursday's close of 0.10-0.15 percent, as available cash began to tighten. "Today is reporting Friday, and moreover there is some profit taking ahead of the auction," a local dealer said.
Banks are required to report their cash positions with the central bank every two weeks.
The central bank is raising the cash reserve ratio (CRR) to 7.0 percent from 6.50 percent with effect from August 4. It said the move would absorb 160 billion rupees ($4 billion) from the banking system. Wholesale price inflation rate is forecast at 4.36 percent for the 12 months to July 21, lower than the previous week's annual rate of 4.41 percent, according to a Reuters poll.
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