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The repo-rate or the repurchase rate is the key benchmark, which sets the floor in the overnight call money market, as it enables lenders to invest excess funds in treasury bills and bonds held by the Central Bank (i.e. at near zero risk). It is also the Central Bank quote s main instrument of signalling the expected direction of overall interest rates to the market.

rnrnThe last repo cut was announced on October 17, when the rate was reduced by 1 percent to 12 percent.

rnrnThe speculation about a rate cut, possibly during the week, was mainly fuelled by the liquidity surplus in the Central Bank quote s repo window.

rnrnThe repo window has been carrying a liquidity surplus of around Rs. 8 bn due to the re-transfer of Central Bank quote s profits from the Treasury.

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rnrnThe repo window acts as the lender at last resort for commercial banks for their trading activities, backed by their government security holdings.

rnrnldblquote The market is reacting strongly on the speculation of a rate cut. Everyone knows that the government is keen to cut rates, despite high inflation dblquote , a money broker said.

rnrnldblquote If the government wants the maximum impact on the market interest rates, it should announce the cut on either Wednesday or Thursday during the treasury bill auctions dblquote , he added.rn