MONEY MARKET
During the course of this week interest rate in the inter-bank overnight money market is expected to rule in the 9-10 per cent band.
A comfortable liquidity situation is likely to continue with inflows on account of the second leg of the repo transactions conducted by the Reserve Bank of India (RBI) last week.
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The RBI had mopped up Rs 1,932 crore at the three-day nine per cent fixed rate repo conducted on Friday. On Thursday the apex bank had received 22 bids for a sum of Rs 2,475 crore at the four-day nine per cent fixed rate repo. Hence, the Rs 4,407-crore parked with the central bank through repos which is due to come in during the week is likely to have a downward pressure on call rate.
Buying interest could be restricted to the treasury bills segment and short-dated papers. Volumes are expected to be poor and activity is not expected to pick up in the government securities market until a clear picture emerges of the post-election scenario.
A lot also depends on when RBI would unroll measures that have knocked the winds out of the money and securities market. The apex bank is expected to facilitate an easy interest rate environment in order to ensure that the year-end valuation of the government securities portfolio does not lead to the annual results of the banks being adversely affected.
The nine per cent fixed rate repos conducted by the cental bank will provide an effective floor for the call rate. But because of this option being available to banks, they have lost their appetite for treasury bills. At the same time, the cut off yields at the treasury bills auction is out of sync with the secondary market yields.
The RBI offered only 7.23 per cent on the 14-day treasury bills, and 7.35 per cent and eight per cent on the 91-day and 364-day treasury bills respectively.
Hence, once again there was devolvement on RBI at the 91-day treasury bills auction with the central bank rejecting all the bids that wanted a higher yield. Against the notified amount of Rs 100 crore RBI did receive three competitive bids for Rs 125 crore but it rejected all of them. One non-competitive bid for Rs 25 crore was accepted while the devolvement on RBI was Rs 75 crore.
At the auction of the 14-day treasury bills the apex bank raised Rs 350 crore. One non-competitive bid for Rs 200 crore and three competitive bids for Rs 110 crore were accepted at the cut-off yield of 7.32 per cent.
There was a devolvement on primary dealers to the tune of Rs 40 crore because of the commission being offered to them by RBI can off load it to the corporates at attractive rates.