CRR, auctions may strain liquidity, Re to dip

WEEKLY MONEY & CURRENCIES

With the new fortnight starting this week, banks will be busy setting aside funds for CRR. The government expenditure is likely to be lean since has a credit balance of only Rs 2,750 crore for the week ended May 2.

On the other hand, foreign exchange inflows will continue to remain subdued as dealers feel that foreign institutional investors (FIIs) would like to wait for the markets to correct further.

In this backdrop, the system will witness an inflow of around Rs 5,088 crore as against an outflow of Rs 5,500 crore.

G-sec: Dull mood
The government securities (G-sec) market may remain range-bound with neither high buying demand nor trading interest.

Banks are cautious of buying and building excess portfolio since the RBI governor had hinted at bringing down the level of statutory liquidity ratio (SLR) in the recent annual policy statement.

Moreover, the level of aggregate deposits over a fortnight ended April 25 has fallen by 0.1 per cent. This lessens the requirement for government securities to be maintained as SLR corresponding to the deposit growth.

In this backdrop, the yield on the ten-year benchmark paper may rule in a wide range of 7.80-8.00 per cent.

Rupee: Set to dip
The spot rupee may continue to rule with a bias towards depreciation.

However, demand for dollars by oil companies may recede since the market expects oil prices to moderate towards $110 a barrel. Oil prices are likely to soften as the crisis in Iran may not last longer, while the problem in Nigeria has already been set right.

On the other hand, there may not be much selling of dollars by exporters if the rupee does not breach crucial barriers of 41.70-41.80. Moreover, arbitrage in the non-deliverable forward (NDF) market will be another trigger for market players to buy dollars, albeit notionally.

Currently, the view on the rupee is bearish, which may lead to notional purchase of dollars to be invested overseas. In this backdrop, the spot rupee is expected to rule in a wide range of 41.00-42.00 to a dollar.