Call rate may ease later on improved liquidity

With a little improvement in liquidity conditions, the interest rate in the interbank overnight market may open steady tomorrow and ease later in the week.

Dealers said the increase in government spending, the effect of Reserve Bank of India’s (RBI’s) bond buyback operations, had taken off some pressure. The liquidity deficit has shrunk.

On Friday, the overnight call rate moved in the range of 6.35-6.4 per cent. In December, the rate ruled above seven per cent on most trading days, reflecting demand for banks at the close of the quarter. The borrowing at RBI’s liquidity adjustment facility by banks declined last week. For the past few weeks, banks were borrowing above Rs 100,000 crore every day. The scale of borrowings declined substantially after January 3. It was down to a daily average of Rs 76,000 crore in the week ended January 7, against Rs 122,000 crore in the previous week.

The situation has improved due to government spending and open market operations. The central bank would decide on further open market operations (OMO) after assessing the liquidity, RBI deputy governor Shymala Gopinath said on Saturday in Udaipur. RBI has been conducting OMOs to buy back government bonds up to Rs 48,000 crore to ease the resource deficit.

A State Bank of India official said besides government spending, RBI’s intervention in the market to buy dollars had released more rupee resources in the system.

On Monday, the call money rate for one-day borrowings is expected to open steady around 6.35-6.45 per cent, as banks will borrow funds early in the day to meet their reserve requirements. It is expected to fall later, as the demand from banks is expected to ease due to some improvement in liquidity.