The call money markets is showing signs of liquidity as call rates ease.

The Clearing Corporation of India website shows that the call rates at 1.00 pm this afternoon are hovering at 5.00 per cent. The lowest transaction of the day was done at 4.25 per cent.

Significantly its volume are much higher up from Rs1,919 crores on Friday to  Rs13877 crores today.

The lower call rates and higher volmes are as direct result of the RBI having further cut repo rates by a 100 basis points on Saturday. (See: RBI boosts liquidity; relief for real estate, export, small sectors)  With  this central bank's borrowing rates have come down to 6.5 per cent - their lowest since January 2006.

This is the third reduction in the repo rates since October (See: RBI cuts repo rate by 100 bps to 8 per cent) 

It also cut its borrowing rate, or the reverse repurchase rate (reverse repo), for the first time in more than five years by 100 basis points to 5.0 per cent. The reverse repo rates are now at a three and a half year low.

The repo rate has a direct bearing on the overnight or the call money market; this is the market where banks and primary dealers borrow money for one day to, typically, 14 days.

Repo rate acts as a floor rate for the call rate.  If call rate is lower than repo rate, banks will borrow on call (if there are lenders) at a lower rate, and lend on repos to the RBI at a higher rate. As repo acts as a floor, a cut in repo rate will also lower call rates. 

The reduced call rates will ease lending rates for banks and will tickle f\down to consumer loans. The increased volumes also show a growing confidence in the viability of the markets.