Liquidity Glut Likely To Tie Up Call At 7.50%

Call rates are expected to rule in the 7.25-7.75 per cent range this week on the back of ample liquidity situation.

Money market dealers are not expecting an auction announced by the Reserve Bank of India (RBI) in view of the Rs 7,000 crore inflows by way of advance tax collections and another Rs 1,500 crore coming in to the system from coupon outflows.

Call rates, which climbed to 15 per cent on the reporting Friday (September 21) with lenders quoting higher to ease the pressure on the rupee coupled with increased demand for funds after advance tax outflows, opened on Saturday in the 7.10-7.40 per cent range and closed at 6.85-7.00 per cent as against the previous close of 6.90-7.15 per cent.

Money market dealers do not foresee any liquidity tightness in the coming week.

The RBI had announced on September 17 that in view of the extraordinary circumstances in the government securities market (the gilts crashed in the aftermath of the attacks in the US), it would open a special purchase window for select government securities on a daily auction basis from September 18 to September 21.

This move infused Rs 3,857 crore worth funds and kept call rates in the 6.85-9.50 per cent band last week.

"The RBI has supported the market throughout last week by purchasing government securities from desperate sellers at prices higher than the ruling levels. This week the market sentiment will be sombre despite comfortable liquidity situation," a money market dealer with a private sector bank said.

He pointed out that an auction announcement is unlikely this week as the government will accrue Rs 8,500 crore. Moreover, the ways and means advance, which is a temporary overdraft facility that the apex bank provides to the government, limit at Rs 8,789 crore as on September 14 is unlikely to be breached before the month-end.

Meanwhile, the RBI has announced that it will be providing liquidity support to market players on Monday also by purchasing four dated government securities --the 11.98 per cent paper maturing in 2004, 11.40 per cent 2008, 11.50 per cent 2011 and 10.45 per cent 2018 per cent -- through open market operations.