Outlook : Money Markets

Bullish on liquidity but some clouds hover over auction

Liquidity will be more than comfortable in the banking system this week despite a Rs 7,000 crore twin auction of government paper on Monday. However, war clouds forming in the Middle East as the United States readies to attack Iraq have put a dampener on what was a bullish trend. Traders feel that Monday will decide the trend for this week with the US trying to garner support from other nations to attack Iraq. US president George Bush is meeting with leaders and US Congressmen over the weekend. Sentiment has been brittle since Friday due to the international developments.

Traders have rushed to unwind their positions, which has added to the liquidity. This has also firmed up yields over the last couple of days.

The government auction is expected to sail through at higher yields, unless the Reserve Bank of India (RBI) decides to take a devolvement and maintain soft interest rates in a bid to escort the Centre