Inflows To Keep Call Rates Calm
MONEY MARKET
Call money rates are expected to move lower this week as against last week's levels of 8.5 per cent. Liquidity is expected to be comfortable due to the large volume of inflows as compared to outflows and the beginning of a new reporting fortnight.
The comfortable inflows could mean that the Reserve Bank of India (RBI) could go for an auction, but most in the market do not expect one till the end of May.
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Call rates therefore are expected to range between 7.5 per cent to 8.5 per cent this week.
Last week call rates were higher due to auction outflows and the end of a reporting fortnight. This week, they are expected to open higher but are expected to inch down gradually due to good coupon inflows.
Inflows are of the order of Rs 2,700 crore due to a large volume of coupons on government securities. In comparison, the outflows of Rs 300 crore are solely due to auctions on treasury bills.
This is contrary to last week when inflows were of the order of Rs 1,493 crore and outflows were of the order of Rs 4,000 crore.
Inflows on May 22 of Rs 559.67 crore are balanced by an outflow of Rs 200 crore due to treasury bill outflows.
Inflows of Rs 1,200.15 crore are expected on May 23 due to coupons on 11 per cent 2003 paper, 11.50 per cent 2008, 12.60 per cent 2018.
Inflows of Rs 286.28 crore are expected on May 24 due to coupons on 13.75 per cent 2001, 7.75 per cent 2002, 12.35 per cent 2004 and 9 per cent 2013 papers.
Coupons of Rs 141.91 crore on a 7 per cent 2009 state development loan and the redemption of a 182-day treasury bill are expected on May 25. Coupons on Rs 135.5 crore on a 13.55 per cent 2001 on May 27 and Rs 380.63 on a 11.90 per cent 2007 paper on May 28 are expected. There is an outflow of Rs 100 crore on May 25 due to an auction of 182-day treasury bill.
Some amount of outflows are also expected due to the on-tap issue of fifteen year government paper. A JP Morgan Fixed Income research report points out that another key factor to watch are portfolio flows and the central bank's strategies in the foreign exchange market. "It is likely that the RBI's FX stabilisation plan would be largely liquidity-neutral to keep bond market sentiment firm."