Call Rates Likely To Rule Easy

The inter-bank call money rates are likely to rule between 2 per cent and 5 per cent this week.

According to treasury heads, the easy liquidity conditions in the market might see some banks going in for `on tap' treasury bills.

The securities market may also witness increased trading interest in treasury bills and short-term government papers.

For most of the last week, the money market was characterised by excess money supply, low demand and low rates. Money had come in from various sources.

Around Rs 5,000 crore, which was taken out of the system during the festival season, was being pumped back.

The Reserve Bank of India had made purchases of $100 million, thereby adding the rupee supply in the system.

On Saturday, the rates hovered around 1 per cent for most part of the day. A few stray deals were reported at .5 per cent.

Since lending in the call money markets have become unattractive, some banks have started purchasing `on tap' treasury bills which offer a relatively more attractive yield of over four per cent. More banks are expected to go in for these bills this week. With call rates likely to rule between 2 per cent and 5 per cent this week, it is better to go for `on tap' treasury bills which offer a better yield, a dealer in a private bank said.

Some dealers expect the call rates to firm up on Thursday, the day before reporting Friday, when banks will seek to square off their positions.

According to one dealer, the calls are now ruling at artificial levels and will not remain easy for long. However, they are unlikely to rise beyond 5 per cent to 6 per cent.

The easy liquidity conditions are expected to continue till December 16 when banks have to make advance tax payments of corporates to the government.

After that, bankers expect the rates to firm up.

However, they add that rates might not firm up too much as most corporates have not fared well as expected.

Hence, outflows on account of tax payments will not be high.

The securities market is likely to see a dip in volumes this week with most of the foreign banks going into limbo.

December is the end of the financial year for foreign banks. Hence, they are not very active in the markets.

And since these banks are major players, trading volumes in the secondary market will witness a substantial fall.

Bulk of the demand this week is likely to be for the short-run papers, particularly tap treasury bills and treasury bills because of the low call rates, dealers said.