Money markets continued to remain tight on Monday as call rates rose to 6.93% from 6.75% on Friday. Banks borrowed a net amount of Rs 1,03,525 crore from the Reserve Bank of India’s (RBI) repo windows, lower than Rs 1,18,570 crore borrowed last Friday.
Meanwhile, yields on the ten-year paper, dropped by three basis points to close at 8.06% on Monday, though they had risen briefly after inflation data for October came in at 8.6%. Wholesale inflation declined for the second consecutive month to 8.58% in October, as against 8.62% in September.
RBI deputy governor Subir Gokarn said on Saturday the liquidity deficit may result in greater volatility in short-term rates. Gokarn noted RBI may relax bond-holding rules, buy back government securities or take other similar steps to deal with a liquidity shortage in the banking system, but would not reduce the cash banks need to set aside as reserves. “It is very difficult to be raising rates on the one hand and reducing the cash reserve ratio on the other because two are contradictory,” he said.