Call rate, CBLO seen stable this week

Overnight money market rates are likely to stabilise this week, as banks would have met most of their reserve needs in the first week of the reporting fortnight. Hence, demand for funds from banks would be relatively subdued.

The cash reserves that banks must maintain with the Reserve bank of India are prescribed as a proportion of the total demand and time deposits on a fortnightly basis.

Banks borrowed around Rs 70,000 crore daily in the last week, the first one of the reporting fortnight. According to the Clearing Corporation of India, the weighted average interbank call rate ended at 7.40 per cent on Friday and 6.96 per cent yesterday, while the weighted average rate on collateralised borrowing and lending obligations (CBLO) closed at 7.26 per cent on Friday and 6.60 per cent yesterday.

Continuous government borrowing is the one factor that could add stress to the ongoing liquidity shortage in the system.

On Friday, the RBI said treasury bills worth Rs 11,000 crore would be auctioned on June 1, Wednesday. According to the calendar, the government is to also borrow Rs 12,000 crore through sale of three dated government securities.

“The short-term rates will stabilise before they harden further in the month of June,” said a treasury official of a public sector bank. This is because there will be increased demand for funds as companies will withdraw to make advance tax payments before June 15.

Analysts expect the advance tax outflow could be Rs 30,000-35,000 crore, putting more pressure on system liquidity.

“The only respite would be inflow from bond redemptions and government spending,” said an analyst from a domestic brokerage.