Delay in govt spend may hit liquidity
WEEKLY MONEY & CURRENCIES
Liquidity is likely to remain tight since the anticipated government expenditure has not yet started. According to dealers, banks will be reluctant to lend in the market as the week is short, interrupted by a holiday.
On the foreign exchange front, the market has been witnessing an outflow of foreign exchange from foreign investors. According to dealers, foreign investors have been pulling out of global markets as a result of the dollar rebound against all other major currencies.
In this backdrop, the system will witness an inflow of around Rs 1,407 crore as against an outflow of Rs 10,500 crore.
G-Sec: Weak trend
Government securities (G-sec) are ruling with a bearish sentiment since inflation has been way above the market expectation of 12.22 per cent. For the week ended July 19, the inflation figured was 12.44 per cent. Liquidity will remain a crucial trigger and most of the banks may look towards bringing down investments.
Moreover, the government will auction the 8.24 per cent 2027 government paper on August 22 to raise Rs 6,000 crore. Therefore, banks will make a room for additional securities to be picked up in the auction.
Towards the end of the week, there may be good trading in the government paper, when banks are through with preparations of the CRR requirement. In this backdrop, the yield on the ten-year benchmark paper may rule in a wide range of 9.10-9.50 per cent.
Rupee: Likely to dip
The spot rupee is expected to trade with a bias towards depreciation. The supply of dollars is under strain. FIIs are shifting assets to other emerging markets since the earnings outlook has been benign in Indian markets following a slowdown in industrial growth and higher inflation.
According to dealers, demand from oil companies and a lack of supply will be major drivers for the spot rupee.
In this backdrop, the spot rupee is expected to rule in a wide range of 42.75-43.50 to a dollar.
In the forward market, the premium is likely to rule in a range-bound manner since demand from importers will be matched by selling of dollars by exporters. Since the rupee is expected to depreciate, exporters and importers are both likely to strike short-term contracts.