The RBI - through the State Bank of India - has been selling dollars in the forex market to prevent the rupee from crashing further against the dollar (the rupee becomes strong when there is abundant supply of dollars in the system). Apart from RBI's dollar sales, FIIs were selling shares in the Indian market and pulling out funds.

During the week, the centre has once again breached the 75 per cent mark of the Rs 11,000 crore ways and means advances (WMA) limit, pegged for the first half of the current fiscal. The advances extended by the Reserve Bank to the central government are pegged at Rs 9,517 crore for the week ended June 5, up from the previous week's level of Rs8,181 crore.

"Despite the private placement of a Rs 5,000 crore ten-year paper with the RBI on June 3, the WMA have gone up to Rs 9,517 crore. It seems that the centre is still facing short-term cash management problems," a debt analyst in a leading brokerage house said.

On Thursday, the RBI made it clear that it is willing to take private placement of government securities to see through the massive government borrowing. This is likely to give rise to higher monetisation and ultimately higher inflation.

Increased monetisation on the RBI due to a 99 per cent devolvement of a nine-year paper has witnessed a rise in the reserve money for the week ended May 29. Reserve money has grown by 11.3 per cent on a year-on-year basis.

The net RBI credit has gone up by 16.5 per cent so far during year which is up by a whopping 6.5 per cent as compared to the previous year 1997-98.

Subsequently, money supply (M3) has gone up to 17.5 per cent as on May 22. This is a 3 per centage point increase over the previousyear's level.