A string of foreign and public sector banks have also hiked the differential interest rates on short-term deposits. Bank of India and Dena Bank announced the hike on Monday while Bank of America and ABN Amro jacked up their differential interest rates immediately after the RBI announcement of the rupee-support package.

The RBI has hiked banks' cash reserve ratio (CRR) by one percentage point to 11 per cent and repo rate by a massive three percentage points to eight per cent. The objective is to suck out excess liquidity from the system and harden short-term interest rates so that banks are not encouraged to arbitrage between the money and forex markets.

"The demand for P1+ rated commercial papers of bigcorporates has doubled in the last one week," said a money market dealer. The October maturity CP is currently offering 13.50 to 14.50 per cent in the secondary market. A few weeks ago the rates ranged between 9 and 9.50 per cent. The October maturity CPs were sold at 15-17 per cent in the secondary market on Friday when the call rates ruled at 35-40 per cent for a brief period.

According to experts tracking the money market, the 300 basis points hike in the fixed rate repo signalling a higher interest rate at the shorter end has created lot of demand for short-term instruments in the market.

The inter-corporate deposit market is also hotting up as 90-day ICDs of cash surplus companies like HLL are selling anywhere between 15 and 18 per cent against 9-11 per cent earlier. "Suddenly corporates are looking forward to borrow from the unorganised ICD market," said a fund manager from a private bank.

According to money market sources, on Friday almost all the banks which were holding certificates of deposits(CDs) and commercial papers (CPs) of corporates were selling it in the secondary market at a high 13-16 per cent level. On Friday, CD of Industrial Development Bank of India was selling at 15-16 per cent early morning when the call rates jumped to 30-45 per cent.

However, in the afternoon it came down to 13 per cent. Bank of America and ABN Amro Bank have increased the differential interest rates on short-end deposits by a massive 650-775 basis points.

Among the new private sector banks, IDBI Bank has hiked the differential interest rates on short-term deposits.

BoI and Dena Bank on Monday hiked the differential interest rate on short-term deposits.

BoI will now offer one per cent additional interest above the normal rates for large deposits of Rs 15 lakh and up to Rs 10 crore for maturities of 15 days to three years.