The call rates have been ruling at 7-8 per cent. The Reserve Bank of India on June 14 slashed the fixed repo rate by 100 basis points to 5 per cent, sending a strong signal that it wants the short-term rate to go down.

Ideally, the repo rate works as a floor rate for the overnight money. However, the cut in the repo rate has not brought down the call rates. The inter-bank rates have been hovering around 7.00-8.75 per cent for the last one week.

According to market sources, the traditional lenders in the overnight market like the State Bank of India, UTI, LIC, Bank of India and others are artificially keeping the call rates at a high of 7-8.75 per cent by parking a part of their surplus funds at the RBI repo window. "If they all rush to the call money market, the interest rate will dip," sourcessaid.

A treasury chief of a nationalised bank said, "Over Rs 10,000 crore has gone out of the system in the last few weeks by way of advance tax and government's two `tap' stocks. There is not much liquidity in the system and the traditional lenders are keeping a larger portion of their funds in the three-day RBI repo at 5 per cent and lending a small quantum of their funds in the interbank call money market, thereby keeping it at an artificially higher level."

The fund-flush banks are earning an average interest rate of 6-6.5 per cent from their exposure between the overnight market and the fixed repo instrument. On Friday, the RBI mopped up Rs 2,000 crore through the three-day fixed-rate repo window.

"Currently, there are very few lenders in the call market. Foreign banks have adopted a cautious approach and almost all private sector banks are queuing up to borrow from the market," said a treasury chief from a nationalised bank.

According to market experts, nationalised banks are not borrowing incall as they have already locked their funds in government securities. Since the government securities prices are falling continuously, banks have preferred to wait and watch as they will have to book losses if they offload the securities portfolio now. The overnight interbank call money rate opened at 7.75-7.60 per cent on Friday and ultimately closed lower at 7-7.25 per cent.