Stable Call Rates Presaged

Call money rates will remain stable and firm in the range of 6.60 per cent to 7.25 per cent this week, with Rs 8,000-10,000 crore of advance tax expected to outflow from the market. Money market dealers said liquidity will remain good on account of huge foreign exchange inflow to the country.

A primary dealer said: "The week being the first week of the reporting fortnight, demand for overnight money will be high. On the other hand, due to the advance tax outflow there will be less supply. This will keep pressure on the call rates."

Call rates stayed around the seven per cent level on Saturday as demand was high because, Monday being a holiday, market participants were for covering three days. Said a dealer with a foreign bank: "Saturday was the first day of the reporting fortnight and thus the demand was supposed to be high. But it was even higher as the banks and primary dealers opted for covering for the next three days."

Dealers, however, are not expecting any open market auction this week, and hence, except the advance tax outflow, there will not be much outflow from the system. The treasury head of a private sector bank said: "The Reserve Bank of India (RBI) has achieved its target of checking the fall in yields, and hence, we do not think there will be any more open market operation in the near future."

However, going by the recent trend, the advance tax outflow is likely be compensated to a great extent by the foreign currency inflow to the country. Pointing to the $218 million inflow during the week ended December 7, the treasury head of a foreign bank said: "We hope the same flow will continue this week as well, most part of which will be mopped up by the RBI itself through the state-run banks. This will release equivalent amount of liquidity in the system and will prevent the call rates from going too high."

Dealers, however, said there will be concern over the uncertainties pertaining to the terrorist attack on Parliament. A dealer said: "If war is declared, the foreign currency inflow may be affected and in that case there will be shortage of liquidity in the market and the call rates can be high."