Overnight cash rates or call rates surged to a five-month high on Tuesday amid worsening liquidity conditions in the wake of the outflows towards last week's advance tax payments for the third quarter.
Banks borrowed Rs 1.64 trillion from the RBI's repo counter today, just below Rs 1.66 trillion a day earlier that was the highest in nearly a year.
In the afternoon today, the one-day cash rate was at 9.50% after hitting 9.65%, a level last seen on July 15. It had closed at 9.40/9.50% on Monday.
Traders are expecting the RBI to conduct more bond buybacks through open market operations (OMO) to tide over the cash crunch.
The central bank has bought back government bonds worth Rs 243.11bn in the last few weeks to help ease the tight cash conditions caused by additional government borrowings.
In September, the Government increased its borrowing plan for the second half of FY12 to Rs 2.2 trillion from the budgeted Rs 1.67 trillion.
Advance tax payments by the top 100 companies in Mumbai for the October-December period rose 10% from the same period last year, according to reports.
Suspected dollar selling by the RBI in the foreign exchange market to halt the rupee's slide had also tightened the liquidity.