Year-End Liquidity Pressure Drives Up Call Money Rates

Call Money Rates Surge to 7% Amid Year-End Liquidity Pressure​

Mumbai, March 30 – Call money rates climbed to 7 per cent on Monday, driven by increased borrowing by banks to meet heightened liquidity requirements ahead of the fiscal year-end. Market participants cited balance sheet adjustments and regulatory demands as key factors contributing to tighter liquidity conditions within the banking system.

Market Dynamics and Rate Movements​

The call money rate, representing the interest charged on overnight funds, saw rates open at 6.85 per cent and subsequently reach 7 per cent according to the Clearing Corporation of India (CCIL). Simultaneously, the Tri-party repo rate experienced a rise, opening at 5.60 per cent and peaking at 6.99 per cent.

“Overnight rates have gone up due to year-end pressure, where banks are reluctant to lend in the call market, and also due to tomorrow's market holiday,” stated Balasubramanian R, Head of Treasury at Dhanlaxmi Bank. “Although the system liquidity is comfortable and is likely to ease in the coming days, market participants panicked in the early morning trades and covered their short positions.”

Year-End Funding Demand​

Typically, during the financial year-end, banks experience increased demand for funds due to higher withdrawals and payments by businesses finalizing their accounts, alongside the fulfillment of regulatory requirements set by the Reserve Bank of India (RBI).

Liquidity Position​

As of March 27, the banking system maintained a liquidity surplus of approximately Rs 1.14 lakh crore. In response to this, the Reserve Bank of India (RBI) injected Rs 50,001 crore in temporary liquidity through a three-day variable rate repo (VRR) auction today.