Indian overnight cash rates inched up on Tuesday on service tax outflows and are expected to remain rangebound between 6.50-6.70 percent this fortnight in the absence of any other major outflows, traders said.

At 2.18 p.m., the one-day interbank cash rate was at 6.60/65, compared with 6.55/60 percent at Monday's close.

"Service tax outflows on 7th and 8th of February have pushed up call rates by 10 basis points in the last 2 days. This has also increased the LAF (liquidity adjustment facility) borrowing. But cash will remain largely comfortable this fortnight," said a trader with a private bank.

The government will sell 100 billion rupees of bonds at an auction on Friday and the outflow will happen next Monday. However, a bond redemption on Feb. 24 will help keep the liquidity deficit in a range of 300-400 billion rupees till the first week of March, the dealer said.

The 6.57 percent 2011 bond is due for redemption on Feb. 24 with around 176.437 billion rupees expected to enter the system.

Banks borrowed 415.85 billion rupees at the central bank's morning repo auction on Tuesday, against a total of 656.8 billion rupees at the twin repo auctions on Monday.

Banks have been borrowing on an average a net of around 850 billion rupees from the central bank's repo window since November through January, but this has fallen to around 720 billion rupees this month.

The liquidity conditions have eased since February beginning due to a pick-up in government spending.

Traders expect liquidity to tighten once again in March when advance tax outflows take place.

Volumes in the inter-bank cash market were higher at 105.82 billion rupees, against a total of 95.90 billion rupees on Monday, Clearing Corp of India data showed.

In the collateralised borrowing and lending obligation (CBLO) market, volumes were 528.03 billion rupees versus 586.21 billion rupees on Monday.

The weighted average rate in the call money market was 6.68 percent, compared with 6.62 percent on Monday, while in the CBLO market it was at 6.47 percent higher than 6.45 percent.