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Cash reserve move pushes Indian call rates down

Reuters - Wednesday, October 8

MUMBAI, Oct 7 - Indian overnight cash rates ended lower for a second straight day on Tuesday on improved market sentiment after the central bank cut reserve requirements by 50 basis points late on Monday.

Call rates <INROND=> closed at 10.50/11.00 percent, lower than 11.00/11.25 percent at close in the previous session.

India's central bank on Monday said it would cut the cash reserve ratio for banks to 8.5 percent effective Oct. 11 to alleviate a cash squeeze caused by the global financial crisis, releasing 200 billion rupees to banks. See [ID:nBOM368709].

"The sentiment has been boosted by the cash reserve ratio cut, but the money has not come in as yet," said a dealer with the private bank. "Demand is lower today as it is second week of the fortnight," he added.

Banks have to report their cash balances to the Reserve Bank of India on alternate Fridays. Demand for funds tends to be lower in the second week of the fortnight as banks prefer to complete most of their funding in the first week itself.

The weighted average rate in the call money market was 10.65 percent, while that for the collateralised borrowing and lending obligation trades, a secured form of money market lending, was 9.19 percent, according to the Clearing Corp of India .

Volume in the call money market was 181.14 billion rupees and in CBLO it was 161.21 billion rupees, CCIL data showed.

The central bank did not received 36.5 billion rupees at the afternoon reverse repo auction, while it infused a total 632.85 billion rupees to the system through two repo auctions, lower than Monday's 676 billion, indicating lower demand for funds.

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