Call Rates May Remain Soft, Ranged

Call money rates are likely to remain soft and stay in the range of 6.50 per cent to 7 per cent this week due to comfortable liquidity in the banking system.

Dealers said initially the rates will be high because of outflows due to the proposed auctions of Rs 4,000 crore on Monday and Rs 2,000 crore on Wednesday but will ease during the latter part of the week. They are expecting oversubsciprtion of both the auctions.

A primary dealer said, "There is sufficient liquidity with the banks due to good deposit growth and little credit offtake. On the back of these, the overnight rates should remain soft and may be below 7 per cent level throughout the week."

The treasury head of a private sector bank said, "All the banks are flooded with funds. But there is very little requirement for the overnight money. However, the rates will be bit high in the range of 6.75 per cent to 7 per cent during Monday to Wednesday because of the outflow from the proposed auctions. For the rest of the week, the call rates may be in the 6.50--6.75 per cent band."

Even though this is the first week of this reporting fortnight, no fresh demand is expected. A dealer said, "The problem is deployment of funds, not availability. Nowadays, banks maintain reserves more than the RBI stipulated 5.75 per cent. In a situation like this, it hardly makes any difference whether it is the first or second week of the reporting fortnight."

Dealers said the market was expecting a 25-50 basis point cut in the repo and reverse repo rates.

A dealer said, "It seems that the RBI will cut the repo and reverse repo rates in this week to render comfort for both the auctions to sail through. In that case the overnight rates may dip even below the 6.50 per cent."

Call rates were in the range of 6.50 per cent to 6.75 per cent on Saturday last week as there was ample liquidity but low demand.

Dealers said most of the players had covered their weekend requirement on Thursday and so the demand was low in the market.