Pre-Divali Demand

Pre-Divali Demand PRE-DIVALI demand for funds emerged in the inter-bank call money market in Bombay last week. The supply tended to fall short of demand, but the consequent tightness made no impact on the call rate, which remained unchanged at 4 per cent. Supply fell short because the lending banks' surpluses were maintained in 3.50 per cent Treasury Bills. Lenders had no incentive to discount their holdings as borrowers refused to pay more than 4 per cent for day-to-day funds. Borrowers' refused because they too have sizeable investments in Treasury Bills which can be discounted to make good the shortfall between suppply and demand. Presumably, that is exactly what the borrowers did.