Calls May Touch 6 Per Cent

MONEY MARKET

The interest rates in the inter-bank overnight money market are expected to rule in the region of five to six per cent this week.

The call rates could go up slightly on account of the outflow of Rs 3,000 crore following the auction of three-year Government of India paper on May 28.

The Reserve Bank of India's (RBI) policy in the forex market will also influence the call money market.

There has been significant coupon inflows during this month from securities that have matured. It is possible that the softening of the call rate could fuel activity in the treasury bills as well as in government securities.

The yields on the 91-day treasury bills is 6.77 per cent while that on the 364-day treasury bills is 8.98 per cent.

However, the secondary market yields are higher by at least 20 basis points. Trading has been concentrated in the 364-day treasury bills.

The reason is that there is hardly any floating stock of 91 day treasury bills.

Among dated securities, the activity will be concentrated on 12.69 per cent 2002. There will also be some activity in the 13.05 per cent 2007.

The prices of the securities went up marginally last week only to come down later because of the impending auction of three-year paper.

At the longer end the 13.05 per cent 2007 was being quoted at a premium of 75 paise.

The market is awaiting with interest the auction of 14-day treasury bills.

The government of India had announced the introduction of the instrument. The introduction of this instrument provides a new investment avenue for short term funds.

It should find favour with the corporates who do not have liquid short term instrument in which they can park their surpluses.

The cut-off yield on the 14-day paper should also provide a benchmark to the inter-bank term money market.

If the auction of 14-day paper is held weekly, it is likely that the RBI will discontinue its repo calendar that it pursues now. In another policy decision with important ramifications primary dealers can now underwrite a minimum of 25 per cent of the notified amount in the auction of any paper.

The PDs are now entitled to commissions only on the underwriting commitments and not on their successful bids at the auctions.

The PDs will have to specify the commission rates instead of the RBI pre specifying it.