Overnight cash rates rose to a fresh six month high on Wednesday on account of tight liquidity after the increase in banks' cash reserve ratio and ahead of the treasury bill auctions later in the day.


At 3:30 p.m. call rates were at 9.70/9.75 per cent, off an early high of 9.85 per cent, which is the highest since January 18. It had ended at 9.50/9.60 per cent on Tuesday.

"Cash has been tight and mutual funds are investing in the stocks now so they are not lending in CBLO, which is pushing call rates higher," a dealer with a private bank said.

The Reserve Bank of India increased the banks' cash reserve ratio, or the amount of deposits bank's have to keep with it, by 50 basis points last month. The increase took place in two stages of 25 basis points each on July 5 and July 19.

Together, the two stages are expected to have drained about 180 billion rupees from the banking system. The central bank is selling a total of 45-billion-rupees worth of treasury bills later in the day, the outflows towards which will take place on Friday. The central bank infused 474.80 billion rupees into the banking system through its daily money market operation, indicating the extent of cash crunch in the system.