Dull Demand To Keep Call Steady

Call money rates are expected to remain steady in the 6.80-7.25 per cent range this week on the back of easy liquidity and lower demand in the second week of the reporting fortnight.

A dealer said: "As usual most players have covered their positions in the first week of the reporting fortnight taking advantage of the low call money rates and, hence, there will be very thin demand this week. Overnight rates should thus remain soft and range-bound."

Call rates hovered between 6.75 per cent and seven per cent on Saturday -- continuing the trend of the previous three days -- on the back of a very easy liquidity conditions. "The liquidity condition was easy and there was no auction outflow as was expected earlier. So, call rates ruled below the refinance rate of seven per cent for most of the week," a dealer said.

There will be more outflows than inflows this week. There will be an estimated inflow of Rs 859 crore on account of coupon payment and redemption of government security and treasury bills, while there will be an outflow of Rs 1,000 crore on account of auction of treasury bills. However, the net outflow of Rs 141 crore is not likely to tighten up call money rates, dealers said.

A dealer with a nationalised bank said: "Rs 141 crore is too little an amount to have any impact on the call market, which is flooded with liquidity." He mentioned that the bids in the repo auction are generally more than 15 times the net outflow for the week.

However, there may be some pressure on the liquidity because of a likely government security auction. Dealers are expecting an auction of Rs 5,000-8000 crore during the week. The chief dealer of a private sector bank said: "Though the WMA figure has come down well below the upper limit of Rs 10,000 crore as on July 27, salary payments and the redemption of government securities have pushed it up more than Rs 10,000 crore. Hence an auction of government security is due."

Dealers feel call rates, which should normally stay below the bank rate of seven per cent, may breach the mark because of the auction.