The country's cash rate increased on Monday after the banks in the country began borrowing for the reporting cycle of two weeks.

The one-day call rate was 8.95/9.00 percent against a close of 8.40/8.50 percent on Friday. The one-day call rate had closed at 8.95/9.00 percent on Sunday. According to market dealers, the rate is increasing as the banks increase borrowings for in order to cover their positions.

Most banks aim at covering their mandated reserve requirements within the first week of the reporting cycle so as to reduce their exposure to volatility later. Banks borrowed Rs. 1.79 trillion or about $36.5 billion on Monday under the liquidity adjustment facility at the central bank's repo auction. They borrowed about Rs. 1.35 trillion on Friday at RBI's repo auction.

Traders expect that the RBI will further reduce the cash reserve ratio and also continue with debt purchases via open market operations (OMOs). They said that the this will keep the rates under control.

Governor Duvvuri Subbarao had reduced the cash reserve ratio (CRR) by 50 basis points in the policy announced on 24 January but he did not change the key interest rates. Many experts believe that the central bank should be more concerned over the slower growth rates in the economy than high inflation rates. Subbarao wants to hold the rates because he believes that there are no signs of fiscal consolidation in the economy.