Calls To Rule Under 5 Per Cent

MONEY MARKET

Interest rates in the inter-bank overnight money market are expected to rule at less than five per cent this week.

The call rates are likely to decline during the course of the week.

After ruling at five per cent for a greater part of last week, calls went up to eight per cent on Thursday on account of increased demand for funds from the primary dealers. The primary dealers were borrowing to fund the securities that they had picked up at the auction of three-year paper.

The Reserve Bank of India's (RBI) intervention in the forex market has influenced the call money market.

There has also been significant coupon inflows during May as well as from the securities that have matured.

According to an estimate, total scheduled inflows in the second fortnight of May was Rs 3,885.45 crore as against Rs 550 crore.

If one adds the outflow of Rs 3,000 crore on account of the auction of three-year paper, the net inflows during the second half of May would still be positive.

The three-year central government paper was oversubscribed nearly two times.

The cut-off was 12.14 per cent weighted average cut off was 12.07 per cent.

Among dated securities, the activity will be concentrated on the new 12.14 per cent 2000 and the 12.69 per cent 2002 papers.

Initially the new paper was being traded at a premium of 10 paise and then it came down to par with some buyers also wanting to buy it at a discount.

If the yield of 12.07 per cent which was weighted average cut-off at the auction be taken as an indicator, the price of this security should settle in the region of Rs 100.18.

Trading in the dormant 11.64 per cent 2000 has also shown signs of revival.

In addition, money market dealers point out the 12.69 per cent 2002, traded at a premium of 40 paise, should be an attractive security.

At the longer end the 13.05 per cent 2007 should also be active. The prices of the securities could move up marginally during the course of the week.

In the secondary market, the yields on the 91-day treasury bills is over 7.1 per cent while that on the 364-day treasury bills is 9.50 per cent.

However, the yields in the primary market on 91-day treasury bills and 364-day treasury bills are 6.77 per cent and 8.98 per cent respectively.

Consequently the interest in the treasury bills among the competitive bidders has declined and secondary market activity is sparse and concentrated in the 364 day treasury bills maturing next year.