Call Likely To Hover Around 6.50 Per Cent

Call money rates will continue to remain easy and hover between 6.50 per cent and 6.75 per cent this week on the back of enough liquidity in the banking system. Money market dealers said that, though there is chance of open market sale during the week, the market is fluid enough to accommodate it.

A primary dealer said: "Last week the demand was very low in the overnight market. This being the second week of the fortnight, demand will be still lower. Hence, despite the possibility of an open market sale, overnight rates should remain easy."

The treasury head of a private sector bank said: "Banks are flooded with liquidity and its effect is being observed in the daily repo outflow. With more redemption and coupon payments coming into the system, conditions will remain comfortable and call money rates should rule around 6.60 per cent."

 

There will be a net inflow of Rs 16,352 crore during the week on account of redemption and coupon payments on government security and treasury bill. However, the Reserve Bank of India (RBI) may place the Rs 4,000-crore government paper placed with it last week in the open market window.

This will certainly reduce liquidity a bit, but is not likely to push up overnight rates over 6.75 per cent.

Call rates were in the range of 6.50 per cent to 6.75 per cent on Saturday. Liquidity was easy and the trading volume was low. Dealers said most players had covered their cash reserve requirement and stayed away from the market. The condition will remain the same this week as well.

Dealers are not expecting any auction during the week. Said the treasury head of a private sector bank: "The RBI has conducted an auction of Rs 6,000 crore last week and more than 90 per cent of the gross government borrowing programme is also complete. In a situation like this, we do not expect any auction this week."

Another dealer said the RBI governor's statement that the current easy interest rate scenario is expected to continue also implies that the central bank will not recourse to liquidity tightening in a major way. "And if that is not done, overnight rates will remain soft and hover just over the repo rate of 6.50 per cent," he said.