Calls Likely To Stay Below 6%

MONEY MARKET

The interest rates in the inter-bank overnight money market are expected to rule at less than six per cent during the coming week.

While a section of the market believes it could come down to three per cent others expect that it will rule in the band of five to six per cent.

There is however a ceiling on the call rates as banks will avail of export refinance facility and general refinance if calls touch 11 per cent.

During the last couple of weeks the interest rates in the inter-bank overnight money maket have been ruling in the band of 0.10 per cent to 0.40 per cent.

Last week the rates shot up to touch 10 per cent on acount of outflows in excess of Rs 5,000 crore towards subscription for the state loans.

With the call rates firming up the rates quoted by the banks went up at the repo auctions.

Consequently the Reserve Bank rejected all the bids that it recieved. The cut off on the 91 day treasury bills continued to be maintained at 6.23 per cent and the issue was fully subscribed.

With calls expected to rule at round 6 per cent, there is not much activity expected in the treasury bills segment.

During the course of last week the secondary market volumes in the treasury bills as well as dated securities continued to be low.

Reportedly some players have started selling the new state government paper at par.

This seems to be a knee jerk reaction to the hardening of calls.

The selling pressure in the securities market is expected to continue this week.

Yields could harden further across all maturities. At the longer end the secondary market yields on the 13.05 per cent 2007 have gone up from 12.73 per cent to touch 12.95 per cent.

In the medium term the price of the 13.80 per cent 2002 fell from Rs 107 to Rs 104.50.

The prices of the short term securities especially the 13.50 per cent 1997, 13.50 per cent 1998, 13.40 per cent 1999, 12 per cent 1999 are also expected to move down.

Prices of these securities moved down slightly on Saturday.

The Reserve Bank of India also announced the auction of five-year central government paper for Rs 3,000 crore.

The yields in the secondary market on five-year paper went up to 12.80 per cent.

Market players expect that the Reserve Bank of India will offer at least 12.50 per cent for the five-year paper.

On the other hand the market expects 12.65 per cent to 12.70 per cent.