Call rates are likely to remain high around 7.50 per cent in the beginning of the week and settle down to seven per cent by the end of the week. Dealers said that though there will be slight liquidity strain in the beginning of the week due to the auction, the lower demand in the second week of the fortnight will bring down overnight rates.
A dealer said, "The auction outflow of Rs 8,000 crore will only strain the liquidity for a temporary period. But as the banks are flooded with deposit money and short of investment opportunity, call rates are not likely to go beyond the 7.50 per cent mark."
Dealers are expecting both the papers to receive good subscriptions. The treasury head of a private sector bank said, "Rs 8,000 crore is a big auction, but the public sector banks and the insurance companies have enough money to absorb that much."
Call rates were in the range 7-7.25 per cent range on Saturday as many of the big lenders stayed away from the market just before the auction. A dealer with a private sector bank said, "As usual there was not much demand for funds on Saturday.
But as there were very few lenders, the rates continued to remain over the bank rate of seven per cent."
The money market dealers also feel that as the spot rupee is likely to remain stable against the dollar in the coming week, there will be no pressure on overnight rates from that side as well.
A dealer with a foreign bank said, "The Indian unit has been stable against the dollar in the last week and is expected to remain so in this week as well. In a situation like this, the auction outflow is the only threat to the overnight market. But we expect the impact of the auction outflow will not last beyond the first half of the week."
A senior dealer said, "The liquidity comfort in the overnight market is judged by the repo and reverse repo auction flow. As the repo outflow is quite moderate and there has been no bid in the reverse repo auction in the last week, the liquidity seems to be comfortable enough. This, with stable forex market condition, should keep the overnight rates in the 7-7.50 per cent range."