Auction Could Alter Trend

Call rates are expected to be in the 7-7.25 per cent range this week on the back of comfortable liquidity in the banking system, but higher demand due to this being the first week of the reporting fortnight and expectations of further auctions may put pressure on the rates.

A dealer with a private sector bank said, "There will be pressure on liquidity as demand will be higher. Also, the ways and means advances (WMA) figures show that there will be another auction during the week."

Another dealer said, "The demand is traditionally higher in the first week for the reporting fortnight. This week will not be any exception to that. In addition, there is likely to be the pressure of government security auctions as well."

Call rates remained in the 6.95-7.25 per cent range on Saturday. Dealers said though the liquidity condition remained comfortable, the extra demand on the first day of the reporting fortnight kept the rates bit higher. The situation will be replicated during the week, they said.

The Rs 2,000 crore worth scheduled redemption and coupon payments on government securities are unlikely to make any impact on the market as the RBI is expected to place a Rs 5,000 crore paper maturing in 2021. The apex bank had recently placed this paper with the central government.

A primary dealer said, "In addition to the open market operations, if the central bank conducts further auctions, call rates can even touch the 7.50-per cent level."

On the basis of the WMA figures, dealers are expecting an auction of at least Rs 4,000 crore in the coming fortnight.

Dealers are concerned over the recent fall in the rupee as well. A dealer with a nationalised bank said, "If there is further fall in the Indian currency, it will put more pressure on the overnight rates as well."

The chief dealer at a private sector bank said, "Though the RBI is unlikely to take any liquidity tightening measures in terms of hiking the bank rate or the cash reserve ratio, they can opt for further open market operations if the rupee slips more."

Dealers are, however, hopeful that if the call rates rose too much, the central bank will help the system through a reverse repo auction. "We expect players to turn to reverse repos in the coming week," a dealer said.