Interbank overnight call rates shot up to 8.75 % on Monday as against its previous close of 6.5%.
The new higher cash reserve ratio of 7.5% that banks need to maintain with the Reserve Bank of India (RBI) was cited to be the main reason for the firming overnight rates, dealers said.
The hiked CRR, or cash that banks maintain as a percentage over their net deposits with the RBI, of 50 basis point from 7%, will drain out Rs 16,000 crore of liquidity from the system this fortnight.
As a result the money market is witnessing some tightness, said a dealer at a private bank.
The interbank call rate opened at 8.0% and ended the day at 8.75%.
In the foreign exchange market, the rupee started depreciating in anticipation that foreign investors would pull out money from equities and repatriate funds to their home countries.
The rupee opened at near about the previous day?s closing level of 39.29/31 a dollar but ended the day weaker at 39.37.
Most dealers expect the currency markets to open on a cautious note on Tuesday.
?The tightness in both, the rupee and foreign exchange markets were felt today but it is too early to predict a trend,? said a chief dealer at a private bank.