Mumbai: The Reserve Bank of India (RBI) injected Rs 4,650 crore ($760 million) into money markets on Monday through its first-ever overnight variable rate repo, raising hopes such short-term cash offers would become more regular.
RBI Governor Raghuram Rajan said last week that the apex bank would consider issuing more frequent and shorter-dated repos, or cash-for-loans transactions.
The RBI began 7- and 14-day term repos in October, but traders complained that these did not run at regular enough intervals, making it hard for banks to manage their near-term cash needs.
The announcement of the one-day repo was thus seen as a relief, although it failed to push down the overnight cash rate because, analysts said, markets sought more assurance that the RBI intends to use them more often.
"This is still work-in-progress since we don't have a perfect system right now, so this should be seen as a tweak," said A Prasanna, economist at ICICI Securities Primary Dealership in Mumbai.
The RBI set the cut-off for its overnight variable term repo at 8.01 per cent, allotting Rs 4,650 crore of the Rs 5,000 crore it had initially announced.
Overnight variable rate repos provide one-day cash infusions at rates set by the RBI after receiving bids from investors.
The overnight cash rate has been volatile and often well over the central bank's benchmark rate of 8.00 percent through much of the year.
Traders have attributed the tight cash conditions to reduced government spending, and said the problem had been magnified by what they see as inconsistent infusions of 7- and 14-day term repos by the RBI.
The overnight cash rate ended at 8.60/8.70 per cent on Monday, higher than Friday's 8.35/8.40 per cent.
(1 dollar = 61.1700 rupees)
Copyright @ Thomson Reuters 2014
Mumbai: The Reserve Bank of India (RBI) injected Rs 4,650 crore ($760 million) into money markets on Monday through its first-ever overnight variable rate repo, raising hopes such short-term cash offers would become more regular.
RBI Governor Raghuram Rajan said last week that the apex bank would consider issuing more frequent and shorter-dated repos, or cash-for-loans transactions.
The RBI began 7- and 14-day term repos in October, but traders complained that these did not run at regular enough intervals, making it hard for banks to manage their near-term cash needs.
The announcement of the one-day repo was thus seen as a relief, although it failed to push down the overnight cash rate because, analysts said, markets sought more assurance that the RBI intends to use them more often.
"This is still work-in-progress since we don't have a perfect system right now, so this should be seen as a tweak," said A Prasanna, economist at ICICI Securities Primary Dealership in Mumbai.
The RBI set the cut-off for its overnight variable term repo at 8.01 per cent, allotting Rs 4,650 crore of the Rs 5,000 crore it had initially announced.
Overnight variable rate repos provide one-day cash infusions at rates set by the RBI after receiving bids from investors.
The overnight cash rate has been volatile and often well over the central bank's benchmark rate of 8.00 percent through much of the year.
Traders have attributed the tight cash conditions to reduced government spending, and said the problem had been magnified by what they see as inconsistent infusions of 7- and 14-day term repos by the RBI.
The overnight cash rate ended at 8.60/8.70 per cent on Monday, higher than Friday's 8.35/8.40 per cent.
(1 dollar = 61.1700 rupees)
Copyright @ Thomson Reuters 2014
Mumbai: The Reserve Bank of India (RBI) injected Rs 4,650 crore ($760 million) into money markets on Monday through its first-ever overnight variable rate repo, raising hopes such short-term cash offers would become more regular.
RBI Governor Raghuram Rajan said last week that the apex bank would consider issuing more frequent and shorter-dated repos, or cash-for-loans transactions.
The RBI began 7- and 14-day term repos in October, but traders complained that these did not run at regular enough intervals, making it hard for banks to manage their near-term cash needs.
The announcement of the one-day repo was thus seen as a relief, although it failed to push down the overnight cash rate because, analysts said, markets sought more assurance that the RBI intends to use them more often.
"This is still work-in-progress since we don't have a perfect system right now, so this should be seen as a tweak," said A Prasanna, economist at ICICI Securities Primary Dealership in Mumbai.
The RBI set the cut-off for its overnight variable term repo at 8.01 per cent, allotting Rs 4,650 crore of the Rs 5,000 crore it had initially announced.
Overnight variable rate repos provide one-day cash infusions at rates set by the RBI after receiving bids from investors.
The overnight cash rate has been volatile and often well over the central bank's benchmark rate of 8.00 percent through much of the year.
Traders have attributed the tight cash conditions to reduced government spending, and said the problem had been magnified by what they see as inconsistent infusions of 7- and 14-day term repos by the RBI.
The overnight cash rate ended at 8.60/8.70 per cent on Monday, higher than Friday's 8.35/8.40 per cent.
(1 dollar = 61.1700 rupees)
Copyright @ Thomson Reuters 2014
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