The Reserve Bank of India on Tuesday infused Rs 5,750 crore (Rs 57.50 billion) into the banking system through the reverse repo (repurchase) route even as a sudden tightness in liquidity saw overnight call money rates shooting up to 7.25 per cent.

The repo window did not attract any bid. The RBI draws out liquidity though the repo route and pumps money into the system through reverse repos.

On Monday, Rs 3,340 crore (Rs 33.40 billion) was pumped in through the reverse repo route, and the repo window saw a single bid of Rs 150 crore (Rs 1.50 billion), which the RBI rejected.

Normally, the repo rate (5 per cent) acts as the floor for call money rates. The rate of reverse repo is 2 percentage points higher than the repo rate. With liquidity tightening, overnight call rates have been hovering at the upper band, around the reverse repo rate.

Money market dealers have attributed the sudden tightness in liquidity to various factors, but not to the Iraq war.

“The tightness has nothing to do with the war. It is partly attributable to the advance tax outflow at the year-end and partly to the banks' traditional window-dressing activity,” said a dealer.

Traditionally, banks rush to push credit offtake in the last fortnight of April because they can bring down the percentage of non-performing assets by raising the credit portfolio, albeit temporarily.

Besides, banks also need to meet their priority sector lending targets before the year ends. They are required to put 40 per cent of their credit into the priority sector.

Hence, very few banks actually have money to lend in the overnight market these days. They also do not have money to put at the RBI repo window.

This is the second consecutive day when the repo window went dry. Last week, the average daily repo was pegged at Rs 3,340 crore (Rs 33.40 billion). In the first week of March, it was at Rs 6,000 crore (Rs 60 billion).

The war has cast its shadow on the bond market, where players are engaging in position-based trading. The driving factors in the dealing rooms are CNN and BBC, with their updates on the war.

In a volatile market, the benchmark 10-year 9.81 per cent paper closed at 6.33 per cent after touching a high of 6.46 per cent. On Monday, it closed at 6.3722 per cent.

Meanwhile, the rupee closed at a new 18-month high of 47.60/61 per dollar against the previous close of 47.65/66.

Opening at 47.6550/6650, it hit an intra-day low of 47.6725 as nervousness gripped the market amid the dollar's weakness against global currencies.

The rise in global crude prices led to a demand for the greenback in the inter-bank market.