As a tell-tale sign of a tight liquidity situation, the overnight call rates have been hovering around 10 per cent. "As the overnight call rate is ruling between 9 and 11 per cent for the last one month, market players are not going to the RBI window as the central bank is offering 300-400 basis points below the market rate," money-market sources said.

Bankers are not ruling out the possibility of another round of cash reserve ratio (CRR) cut if the tightness persists. The RBI had slashed CRR by half a percentage point immediately after the announcement of the Union budget and followed it up by an identical cut this month.The cuts together infused about Rs 6,500 crore into the system.

The sudden tightness in liquidity -- despite the half a percentage point cut in CRR, which released Rs 3,250 crore into the system on May 8 -- is a fallout of the RBI's aggressive open market operations (OMO) and the spate of the Government's borrowing programme.

"Between May 1 and May 15, the RBI mopped up Rs 4,200 crore from the system through the open market operations and another Rs 5,000 crore was taken away by the price-based twin-bond auction. That completely neutralised the effect of the CRR cut and an additional Rs 6,050 crore was sucked out of the system," said a senior debt analyst.

In fiscal 2000, the Centre's net borrowing so far has been pegged at Rs 19,500 crore. Taking into account the tranche of state loan, the total borrowing is worth over Rs 26,000 crore. RBI sources attributed the tighteness to the Government's market borrowings.

"In the last two weeks, primary dealers (PDs) and commercial banks together have takenrefinance worth Rs 11,000 crore," said a Securities Trading Corporation of India (STCI) official. The refinance rate is pegged at 8 per cent. The PDs can avail of the additional refinance facility at a premium of 2 per cent (10 per cent).

Money-market sources said that under the existing tight money market conditions when the call rates are ruling 300-400 basis points above the RBI repo rate, the PDs have no option but to knock at the RBI's door for refinance.

"Whatever excess fund was available in the system has gone to the gilts market and most traders have taken positions in securities expecting prices to shoot up," said market dealers.

The prevailing high call rates has forced traditional lenders like Life Insurance Corporation, Unit Trust of India, and State Bank of India to move away from the overnight call money market to the Government securities market, which saw a sudden spurt in gilts trading in the last two weeks.