Mumbai: Banks rushed to borrow a record 2.16 trillion at a cheaper rate from the Reserve Bank of India’s (RBI’s) daily liquidity adjustment facility (LAF) window a day before the central bank’s 75,000 crore borrowing cap came into effect.

The borrowing by banks sent the interbank overnight call money rate crashing to 6.3% in afternoon trade, much below the 7.25% repo rate (at which RBI lends to banks) and down from Tuesday’s peak of 9.25%.

Banks borrowed this record amount to average out their requirements because rules mandate that they have to maintain at least 80% of their average daily cash reserve ratio (CRR) on a fortnightly basis. CRR is the amount of deposits banks keep with RBI without interest.

The party will end on 17 July when the LAF restrictions come into force and call rates will likely shoot up as RBI’s daily borrowing cap comes into force.

Late on Monday night RBI said banks cannot borrow more than 1% of the system’s total deposit base, or 75,000 crore, through the daily repo window. There was no such limit earlier.

In case any bank needs cash, it can get money from the central bank at a steeper rate than before under the marginal standing facility (MSF). Banks used to borrow from MSF at the repo rate plus one percentage point more, or 8.25%. That has been raised to 10.25%.

RBI also said it will sell bonds worth 12,000 crore in the secondary market on 18 July to suck liquidity out from the system.

Economists said the measures signal a tighter monetary policy without having to raise the benchmark repo rate, which remains unchanged at 7.25%.

With RBI’s move on Monday extinguishing expectations of a rate cut at the next policy review on 30 July, seven out of 12 economists polled by Mint viewed the measures as the start of a reversal in policy stance as the central bank shifts focus towards supporting the Indian currency in a changing global economic environment.

Five of them, still betting on at least another repo rate cut, acknowledge that the chances are remote and most likely delayed to the latter part of fiscal 2013-14. However, they still expect RBI to maintain a softer bias on rates because of slow domestic growth, falling inflation and hopes that the rupee will stabilize in the next few month.

“The measures indicate that RBI’s monetary policy stance is not accommodative anymore. These liquidity-tightening measures indicate that RBI has changed its policy priority. It is clear that external-sector considerations are now dominating the central bank’s monetary policy stance," said Samiran Chakraborty, regional head of research (India) at Standard Chartered Plc., in a note on Tuesday.

RBI’s use of a tool other than the policy rate signals that this is intended to be a temporary measure to address a specific problem, not the beginning of a monetary policy tightening cycle, said Roland Randall, senior economist at Australia and New Zealand Banking Group.

“This policy move has all but ruled out the possibility of a cut in 2013. RBI’s first priority is to stabilize the rupee. Easing monetary conditions risks placing further downward pressure on the rupee as it becomes a less attractive currency. Only when RBI is confident it has stabilized the rupee will it consider easing monetary conditions to stabilize growth," Randall said.

Since April 2012, RBI has cut the policy rate by 125 basis points (bps) and infused liquidity through CRR cuts and bond buy-backs through so-called open-market operations. A basis point is one-hundredth of a percentage point.

Chief economic adviser to the government of India, Raghuram Rajan, said the RBI measures are temporary for “weeks or months and not quarters". He was speaking on a conference call with economists on Tuesday organized by Bank of America Merrill Lynch (BofA-ML).

RBI took the steps as rupee is showing some signs of appreciation to “solidify expectations", he said.

Banks said they won’t change their interest rates as RBI’s steps are temporary. State Bank of India, Punjab National Bank and IDBI Bank Ltd said in separate releases that they are not contemplating any change in interest rates.

On the flip side, Bank of Baroda chief economist Rupa Rege Nitsure said: “There is no hope for a rate cut because external sector risks are too high... RBI cannot make money cheaper at this juncture. If there is a rate cut, it would be only in the fourth quarter after seeing what the monsoon had an effect on the food prices."

To be sure, given the volatile external situation, economists do not want to say a definite yes or no, but there is a consensus that rate cuts are unlikely at least for the next three months.

Then there are some like Deutsche Bank AG, which have kept their forecast for a 75 bps rate cut by end-December unchanged.

“Now that a large spread between the policy repo rate and the MSF rate has been created, the RBI could actually cut the repo rate and still keep the penalty rates very high, thus achieving the dual objective of reducing the cost of funds in the ordinary window while keeping the exceptional window costly," Deutsche Bank economists Taimur Baig and Kaushik Das said in a note on Tuesday, adding that if inflation comes down to 4% by September, growth is no more than 5%, and the rupee stabilizes, “the central bank will be compelled to cut rates".

In another note, BofA-ML said Monday’s moves have “pushed back softening of interest rates".

“We have scaled back our RBI rate cut call to 50 bps (from 75 bps) by March 2014. We expect the RBI to cut rates by 25 bps each in October and January skipping September," BofA-ML said.

Following Monday’s measures, the rupee rebounded to close at 59.31 per dollar, up 0.97% from its previous close of 59.895. The Indian currency had plunged to a lifetime low of 61.21 per dollar on 8 July and has gained more than 3% since then. So far this calendar year, the local currency has lost 7.2%, making it the biggest loser among all Asian currencies, excluding Japan.

The yield on India’s 10-year benchmark bond touched a high of 8.2%—the highest level since the paper was launched in May this year—and closed at 8.09% compared with its previous close of 7.55%.

Stocks fell.

The benchmark equity index, the S&P BSE Sensex, lost 0.91%, or 183.25 points, to end at 19,851.23. The National Stock Exchange’s Nifty index declined 1.25%, or 75.55 points, to 5,955.25.

Dinesh Unnikrishnan contributed to this story.