Choice is obvious
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Last week, immediately after the rate cuts, the call money rate was seen to be in the corridor below the repo, the rate at which banks can borrow from the RBI, of 8 per cent, and reverse repo rate, the rate at which banks lend excess funds overnight to the RBI, of 6 per cent. But on Friday they were back up again and crossed 8, the repo rate. On Monday, they went further up to an average rate of 9.3 per cent. The increase in the call money rate indicates that the liquidity situation has still not eased. As long as banks are borrowing in the overnight call money market at rates above the corridor there will be uncertainty about the liquidity situation in the coming days.