Govt`s farm loan waiver relief to aid liquidity

WEEKLY MONEY & CURRENCIES

Liquidity: Looking bright

Liquidity in the system may improve this week, with the government beginning to compensate banks for the farm loan waiver scheme, triggering the money flow into the market.

Falling crude oil prices and a recovery in global equity markets may prompt foreign institutional investors (FIIs) to bring in foreign exchange into the market. However, the bearish US non-farm payroll data, the lowest in the last four years, are likely to dampen the market sentiment.

Another pressure point for liquidity will be the dollar demand from oil companies if RBI does not resume its facility to supply them foreign exchange. In this backdrop, the system will witness an inflow of around Rs 1,511 crore as against an outflow of Rs 14,500 crore.

Call rates: To moderate

Call rates are likely to rule in a comfortable range of 6.5-8 per cent following easing of liquidity. Funds infused by RBI under the repo route have come down substantially from a high of Rs 40,000-50,000 crore to Rs 5,000-6,000 crore.

G-sec: In a range

Prices of government securities (G-sec) are likely to remain range-bound in the short term even as the outlook remains bullish for the long term. According to dealers, RBI may not hike the repo rate any further, although chances of a CRR hike are quite high. The yield on the ten-year benchmark may rule in a wide range of 9.10-9.30 per cent.

Rupee: Linked to oil

The rupee movement depends on crude oil prices. The currency has already started appreciating, with oil prices falling from a high of $126-127 to $121 a barrel and the market expecting a further drop to $109 a barrel.

If crude oil prices continue to remain high and RBI does not resume the open window facility for oil companies to purchase dollars, the demand for the greemback may pull it down to 42.75-80 to a dollar. In this backdrop, the spot rupee is expected to rule in a wide range of 42-42.90 to a dollar.