Rs 30,000 Cr Inflow Expected
The money markets are expected to witness a massive inflow of over Rs 30,000 crore in the system beginning from today till the end of July amid widespread fear of uncertainty over the direction of long-term interest rates.
The amount, expected over the next three months, roughly equals the expected outflow from the system on account of gilt auctions at about Rs 5,000 crore every fortnight.
Earlier, there was apprehension in the market that due to the huge government borrowings, the markets will have to face a liquidity crisis during the next few months. What's more, the Reserve bank recently cautioned against unsustainable macro economic conditions, worsened by the drought conditions.
According to data provided by Kotak Mahindra Capital, a Rs 30,876.7 crore inflow is expected between May 8 and July 31 through coupon payments and redemption of dated government securities. However, this excludes inflows from 14-day and 91-day treasury bill redemptions during the same period.
But the present liquidity position seems to be comfortable, going by the response evoked by RBI's fixed rate repos. RBI has received bids of Rs 1,500 crore to Rs 3,500 crore quite regularly, implying that there is sufficient liquidity in the system even though the call market has been volatile.
Due to the underlying uncertainty, the yield of longer-tenure securities has displayed erratic movements this year, and the short- term securities have caught the investor's fancy.
For instance, the yield on 10.85 per cent 2001 has improved from 10.25 per cent on March 31 to 9.75 per cent and 10.48 per cent on April 3 and May 6 respectively.
The government has targeted a gross borrowing of Rs 1,16,861 crore (up by 40 per cent over the previous year), of which the centre has already raised 15.83 per cent amounting to Rs 18, 500 crore, including Rs 1,500 crore through issue of 364-day T-Bills. Another Rs 4,369 crore has been drained out of the system after the first tranche of state government loans, raising the total outflows to Rs 22,869 crore.
Against this, there has been an inflows of Rs 19,191 crore in the system during this fiscal including Rs 7,200 crore due to the cut in the cash reserve ratio.