MUMBAI, Dec 18: After remaining below the 10 per cent level for almost two years, the inter-bank call money rates (interest rate on short-term borrowings among banks) skyrocketed to a 22-month high of 50 per cent indicating the drying up of liquidity in the banking system.

A combination of factors like advance tax outflows, RBI intervention in the spot segment of the forex market and absence of major lenders led to such high call rates, dealers said. Call rates finally closed at 10-13 per cent levels, the same as on the previous day, dealers said. The tightening of call rates also signals a rise in interest rates.

Dealers said that only 10 per cent of today's deals were conducted at above 30 per cent levels. ``There were 3-4 deals struck at 45 per cent, 4 to 5 deals struck at 40 per cent and one desperate deal struck at 50 per cent,'' a dealer in a public sector bank said. According to him, rates started to come down after the LIC stepped into the market to started lending at lower rates. ``After that it just headed downwards,'' he said.

Treasury chiefs of banks said that the tightness will remain in the money market as the RBI has been successful in mopping up all the excess short term liquidity from the system. ``All the buffers like the money that used to come from the maturity of repos and treasury bills have dried up and coupled with the intervention in the forex market, tightness will remain in December,'' a bank treasury head said.

Analysts say that the forward dollar sales being conducted by the apex bank in the past month mature for payment which will draw out rupee liquidity from the banking system. Major lenders like the SBI, LIC and the UTI stayed away from the inter-bank money market. The RBI intervention in the forex and several measures announced by it recently contrbuted to the tightening of the call rates. When the RBI sells dollars in the market, an equivalent amount in rupees is sucked away from the system. The RBI has sold almost $ 3 billion in the last one month to prop up the rupee. Besides, steps like the hike in CRR have mopped up excess liquidity in the banking system.

The RBI through open market operation pumped in around Rs 75 crore after its priced some securities at prices above the market prices. This was done to prevent borrowers from getting panicky. ``It was bloodbath in the money market today,'' said a money market source. ``It was just panic on the part of some private and foreign banks,'' said another dealer.

In a related move, the RBI today barred traditional lenders from entering into deals through its purchase window.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.