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Call Money at 8.5%, one trade at 75%

Business Standard: (HT: @soulucky)

In spite of banks parking nearly Rs 40,000 crore surplus cash with the Reserve Bank of India (RBI), at least one player today borrowed funds in the overnight call market at 75 per cent.

According to data available on the negotiated data system (NDS) platform, at 4.18 pm, a bank or bond house accessed the call money market to raise Rs 3.3 crore at the high rate.

Overall, however, there was upward pressure on overnight cash rates. The rise was prominent after RBI conducted the liquidity adjustment facility (LAF) operations in the morning.

“Perhaps, some bank miscalculated their fund requirement and, therefore, had to resort to borrowings at higher rates in the afternoon,” said the head of treasury at a private sector bank.

Another executive said banks cover their positions for reporting Friday one week in advance. But, this being the last fortnight of the financial year, banks are rushing to meet business targets, which is partly pushing call rates.

Some banks faced unexpected cash shortages ahead of a holiday, with needs specific to the financial year-end also weighed in.

The call money is expected to fall back to the reverse repo floor on Thursday. Traders said some banks, which invested in short-term assets like commercial papers ahead of the financial year-end, probably scrambled to cover positions by borrowing from market, leading to sudden shortfall of cash.

The rising in call rate is also in sync with RBI’s action to raise its benchmark borrowing and lending rates by 25 basis points each to rein inflationary expectations. The repo rate is now at 5 per cent and the reverse repo at 3.5 per cent.

The freak trade is here:

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(Click for a larger picture)

These are freak trades – any of the reasons mentioned above could have happened, or it could be a fat finger trade where they expected to punch in 7.5 instead. Because of that – the 3.3 crores will give the seller an interest of Rs. 67,800 for a day; not too bad for anyone who wants the money desperately overnight.