Confirming the development, Reserve Bank CGM internal debt management cell Usha Thorat said, "To ease tight liquidity conditions, a substantial amount was released into the system in the form of liquidity support to primary dealers recently."

According to market sources, the amount released into the system is to the tune of Rs 4,000-4,500 crore. The RBI move eased call rates on Tuesday, which closed at 8.50 per cent. "The central bank's move is targeted at softening interest rates which are hovering much above the repo rate owing to tight liquidity conditions in the system," STCI deputy general manager SR Kamath said.

Another reason for allowing the tier-II support (discretionary support) to primary dealers, feel market dealers, is successfully seeing through the state loan auction under tight liquidity conditions.

Liquidity support provided bythe central bank to PDs is based on the bidding commitment made by them. All the primary dealers are allowed tier-I liquidity support, which is 75-80 per cent of the total liquidity support available to individual PDs. The discretionary support is made available to PDs under tight liquidity conditions to ease the pressure on interest rates.

Money market sources are of the view that under the existing tight money market conditions when call rates are ruling 160-170 basis points above the RBI repo rate, PDs have no option but to knock at the RBI's door for refinance.

"Talking an overview of the existing money market conditions, the RBI has allowed tier-II liquidity support to PDs," sources said.

In the last fortnight, about Rs 1,934.95 crore left the system on interest payment on securities while Rs 2,088.16 crore entered the system on securities redemptions.

The total repo subscription was low during the earlier part of the fortnight. However it picked up later as reverse requirements were covered. Thesurplus funds were confined in the hands of a few players, which is evident from the number of applications the central bank received throughout the week.

According to money market sources, liquidity in the coming fortnight may not be sufficient to maintain call rates at 8 per cent. "Repo funds may not be re-invested early in the fortnight and a fresh supply of government of India stock is also not expected on account of poor inflows and low ways and means balances," dealers said.

In its busy season credit policy, the central bank announced that it would support the market through a liquidity adjustment facility operated by way of repos.