Call May Linger Around 7% On Tax Outflows
Call rates are seen in the higher range of 7-7.50 per cent this week on account of advance tax outflows.
Call rates may test the 7-per cent level today as banks are expected to cover for two days in view of the Christmas holiday, said a money market dealer with a public sector bank.
Call rates will inch up by 10-5 basis points next week over the previous week's level of 6.70-7.25 per cent. There could be a slight squeeze on liquidity on account of advance tax outflows worth around Rs 9,000 crore.
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"There could be a slight tightening in the liquidity in the inter-bank money market. Even though the cash reserve ratio (CRR) cut of 25 basis points will bring in Rs 2,000 crore into the banking system towards the end of this week, it will not be of much help as far as liquidity is concerned," said a dealer with a public sector bank.
The CRR cut of 175 basis point to 5.75 per cent on November 3 had released Rs 6,000 crore into the banking system. The 25 basis point CRR cut during this week is the second and final one to be effected by the Reserve Bank of India (RBI) as per its mid-term review of its monetary and credit policy.
During last week, call rates were broadly ranged in the 6.70-8 per cent band (low/high) amidst increasing uncertainty over the country's conflict with Pakistan over cross border terrorism.
However, aggressive lending by banks calmed the rates towards close on most of the days.
Call rates ended higher at 7-7.25 per cent on Tuesday on the back of increased demand for funds from banks. On Wednesday, call rates touched an intra-day high of 7.75-8 per cent before dipping to 6.75-7 per cent levels on lending by banks. On the remaining three days, call rates were ranged in the 6.75-7 per cent band.