| Liquidity in the banking system will remain comfortable this week despite a significantly higher outflow of Rs 13,500 crore through the auction of government securities and treasury bills. Inflows, on the other hand, will be at Rs 2,422 crore.
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| The government is expected to announce an auction to borrow around Rs 10,000 crore in the first week of June. Another factor that could exert pressure on liquidity is global oil prices.
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| If their upward spiral continues, there would be a rush by importers to cover payment obligations. A dealer said the headline inflation rate is expected to be moderate this week due to last year’s base effect.
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| Auction to influence call rate
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| The call money rate, at which banks lend and borrow funds for their daily market operations, is expected to rule in a moderately high range of 4.95 to 5.10 per cent.
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| The slight drift upwards could be seen when the Reserve Bank of India announces the government securities auction. But proceeds from American depositary receipts issues of corporates are expected to offset the pressure on funds.
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| An area of concern for the market participants is the tapering level of foreign portfolio funds.
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| This trend, clubbed with rising government borrowings, could have a bearing on the funds position this week.
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| Market cut-offs for bills on the block
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| Treasury bills — both the 91-day and the 182-day varieties — will be issued for Rs 2,000 crore and Rs 1,500 crore, respectively, this week.
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| Of the proceeds from the 91-day bill auction, Rs 500 crore would go towards the government borrowing programme while the rest Rs 1,500 crore will form a part of the market stabilisation scheme.
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| Similarly, Rs 500 crore from the 182-day bill auction will go towards the government borrowing programme, while the balance Rs 1,000 crore will be for the market stabilisation scheme. The cut-off yields are expected to be market-related. |
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