Liquidity in comfort zone, Re may drop
WEEKLY MONEY & CURRENCIES
| According to dealers, liquidity will remain comfortable till the outflow towards advance tax occurs on March 15. |
| Meanwhile, the Reserve Bank of India (RBI) has suggested the government to auction surplus cash maintained with it, modalities for which are yet to be worked out. The government has maintained a credit balance of around Rs 54,200 crore with RBI as on February 22, 2008. |
| In this backdrop, the system will witness an inflow of Rs 2,725 crore through coupon redemption as against an outflow of Rs 1,000 crore. |
| Call: Likely to fall Call rates, at which banks lend and borrow from the market, may fall in the wake of liquidity getting back into a comfort zone. Call rates are expected to rule in the range of 6-6.5 per cent. |
| G-sec: Rally afoot The government securities (G-sec) market is expected to rally in the beginning of the week as the borrowing programme for 2007-08 has been less than the last year's. The government has borrowed around Rs 1,40,000 crore this year so far. |
| Dealers said this amount would not be adequate even to meet the SLR requirement of banks. |
| However, the market is not sure how the government will raise Rs 60,000 crore for debt relief to farmers and make provision for changes in the pay structure of the central government employees under the new pay commission report. |
| In this backdrop, the benchmark ten-year paper will move in the range of 7.52-7.60 per cent. |
| Rupee: May head south The spot rupee-dollar exchange rate will rule with a bias towards depreciation. |
| Contrary to expectation, the Budget raised the short-term capital gains tax, which is a dampener for capital market transactions. This might be a disincentive for fresh capital inflow into the market. |
| The Budget also kept the corporate tax rate intact, which may affect corporate profitability. Dealers said this might affect the appetite for investments in the market besides hampering fresh inflow. |
| The demand for dollars will continue, especially from oil companies, to cover their import requirement. This is because crude oil is already hovering around $100 a barrel. The shortage of dollars is expected to continue because sale of dollars by exporters remains the only source till now. |
| However, exporters are selling mostly in the forward market. |
| In this backdrop, the rupee-dollar rate is expected to rule in the range of 39.80-40.25 to a dollar. |
| Meanwhile, dealers said need for rupee funds will surpass dollars in the wake of advance tax payments. Therefore, swapping of rupees for dollars will not be as high as was seen last week. This, in turn, will raise the cost of rupee and the premium to be paid for forward dollars may firm up a bit. |
| Post-script The government borrowing programme worked out lesser than the last year's Rs 1,10,000 crore. |