Calls Likely To Rule Under 1%

MONEY MARKET

The interest rates in the inter bank overnight money market are expected to rule at less than one per cent.

In the coming weeks it is expected that there will be an increase in the activity in the inter bank term money market.

In fact there was some activity in the last week. Leading the pack among the lenders were Corpoation Bank, Andhra Bank, HDFC Bank.

The new private sector and smaller foriegn banks were the one scouting around for atteactive rates.

Dresdner Bank borrowed three-month money at nine percent while Centurion Bank borrowed six-month money at nine per cent.

Given the nascent stage of the market it is not surprising that the interest rates will be volatile and there could be divergence in the rates quoted for the same maturity and vice versa.

Interest rates are expected to stabilise at a level slightly more than that on the corresponding yields on treasury bills.

For the first time in the recent past, two 30-day repo deals were struck. It is now expected that there could be an increase in the quantum of short and medium term repo deals transacted.

Surprisingly in the auction of 91-day treasury bills there was devolvement on the RBI and the primary dealers to the extent of Rs 150 crore.

Against the notified amount of Rs 300 crore the RBI received competitive bids only to the tune of Rs 150 crore.

The cut off yield was higher at 6.23 per cent as against less than 5.5 per cent in the earlier auction. In the treasury bills segment the activity is expected to be concentrated on the 364 day terasury bills auctioned this year.

Like last week the interest in the gilts market is expected to be subdued.

The selling pressure could continue. In fact the price of the recently auctioned 13.05 per cent 2007 came down from Rs 102 to Rs 101 during the course of the last week.

This was subsequent to the decision by the government of India to opt for a private placemnent of Rs 5,000 crore in the form of 10 year paper at 13.05 per cent.

With subsequent volumes of dated paper assured the incessant price rise witnessed in the last one month has been partially stemmed.

Consequently the foreign banks and private banks have unwound their trading positons.

Banks are now waiting for the state loan of Rs 2,500 crore scheduled for the end of this month

They are also speculating about what price the RBI will put the privately placed paper on its sale list.