Fund Glut May Keep Call Rates Ranged

Call money rates are seen in the 6.50-6.75 per cent range this week owing to the easy liquidity condition in the market.

According to money market dealers, being the second week of the reporting fortnight, the demand will be low which will keep overnight rates free from any pressure.

A treasury head at a new private sector bank said: "The market is flushed with liquidity as there is not much credit offtake. Moreover, there is around Rs 8,000 crore unused export credit refinance facility available with the banks. Hence we do not expect call rates to firm up."

Call rates hovered around the 6.50-6.65 per cent band on Saturday. A dealer with a private sector bank said: "It seemed that most of the banks have covered their cash reserve ratio requirements already and hence the market was very thin on Saturday."

The easy liquidity condition will be further eased by inflows worth Rs 1,316.2 crore on account of the coupon payment on central government securities and state development loans.

Dealers, however, are expecting that inflows will be outstripped by a government paper auction to the tune of Rs 6,000-8,000 crore by the end of the week.

A primary dealer said: "The fiscal situation of the central government suggests that the government will need to borrow another Rs 20,000 crore-25,000 crore from the market. As the central government does not borrow too much in March, most of the borrowings will be completed in February only."

However, the auction will not affect call rates, dealers said. A dealer with a private sector bank said: "The market has enough liquidity to absorb one auction.

Moreover, the possibility of an auction is already factored in. Call rates may go up slightly prior to the auction, but still it is unlikely that it will cross the 6.75-per cent mark."