Flush Funds Likely To Keep Call Rates Soft

Call rates are expected to rule easy in the 6.50-6.60 per cent range this week on the back of ample liquidity in the system.

Continuing easy liquidity situation will lead to active buying in government securities and also exert downward pressure on forward premiums.

"There is a strong expectation of a repo rate cut of at least 25 basis points in the next couple of weeks and this will drag call rates down commensurately around the repo rate levels," a money market dealer with a public sector bank said.

"There will be availability of funds at the repo rate of 6.25 per cent and this will further soften yields on government securities. Further the reverse repo rate will come down to 8.25 per cent levels as there is always a 200 basis point differential between repo and reverse repo rates," a dealer said.

Call money, which touched 8.25 per cent levels on last Friday (which happened to be the reporting Friday), eased to the 6.50-6.55 per cent levels on Saturday. Money market dealers have forecast that the liquidity situation will we comfortable in the coming week.

"There was a spike in call rates on Friday as some banks had kept their positions open assuming that the rates will be easy in the run-up to the reporting fortnight. But when a big nationalised bank stayed away from the market, call money rates surged," said a dealer with a public sector bank.

Backed by easy liquidity, call rates hovered around 6.50-6.70 per cent throughout last week. The last week saw call rates touching a low of 6.40 per cent and a high of 8.25 per cent.