Narrow Run Expected Due To Liquidity

Call money rates are expected to hover in the 6.50-6.80 per cent range this week backed by ample liquidity. Dealers expect the repo amount in the auction conducted by the Reserve Bank of India (RBI) under the liquidity adjustment facility (LAF) to be in excess of Rs 5,000 crore from Monday.

Call rates edged slightly higher to the 6.70-6.90 per cent level on Saturday, which was the first day of the reporting fortnight, as against the previous day's 6.50-6.60 band.

Dealers said typically on the first day of the reporting fortnight players tended to build up products. Moreover, large lenders had lent three-day money on Friday, hence there were fewer lenders on Saturday.

On the rate cut front, market players expect a cut in the benchmark bank rate by the apex bank either a couple of days before the review of the monetary and credit policy or after it.

"Calls should hover around the refinance level and liquidity should be good. There could be slight pressure on call money rates around the time of the state auction, which is slated for October 10 and will see an outflow of Rs 2,760 crore," a money market dealer with a private sector bank said.

An auction announcement by the RBI is unlikely in the next one week to 10 days as the auction of state government loans is scheduled for October 10, he said.

"Call money rates should hover between the floor rate of 6.50 per cent (repo rate) and the cap of the refinance rate of seven per cent this week," said a dealer with another private sector bank.