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MUMBAI Aug 11 The Reserve Bank of India
injected 46.5 billion rupees ($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
RBI Governor Raghuram Rajan said last week that the central
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
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.
After market hours, the RBI followed up with a second
announcement of another variable rate one-day repo for 50
billion rupees to be conducted on Tuesday.
"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 percent, allotting 46.50 billion rupees of the 50
billion rupees 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 percent on
Monday, higher than Friday's 8.35/8.40 percent.
(1 US dollar = 61.1700 Indian rupee)
(Reporting by Neha Dasgupta; Editing by Rafael Nam/Ruth