Choppy Forex Mart, Tax Outflow May Fuel Call

A volatile forex market and advance tax outflow are likely to keep call rates around 7-7.75 per cent during the week. Money market dealers said the movement of the rates will depend on how the Reserve Bank of India (RBI) counters the sliding rupee.

A dealer said, "The rupee is slated to fall more against dollar during the week. One option for the central bank is to mop up liquidity from the market so that the speculative forces do not set in. If the apex bank resorts to such an action it will certainly push up the overnight rate."

Dealers are, however, not expecting any auction during the week. Said a dealer with nationalised bank, "The liquidity scenario is not in favour of conducting any auction as it can lead to a devolvement on the RBI."

 

Call rates were in the 7.25 -7.75 per cent range on Saturday as some big lenders were not present in the market. A dealer with a private sector bank said, "The demand was high and at the same time there was very few lenders. This kept the rates high."

Traders expect the liquidity position to come under strain over advance tax outgo and with no major inflows expected. A dealer with a nationalised bank said, "We expect an advance tax outflow of Rs 7,500 crore during the week. But there is not much inflow to replace it and the liquidity will fairly be under strain."

A primary dealer said that many banks and primary dealers have not covered their position for the reporting fortnight and this may result in higher demand in the call market in the coming week. "Many market participants have kept uncovered position as the call rates were high during the week. They have to rush for liquidity in the coming week which will put pressure on the call market."

Dealers are even expecting some inflow through the reverse repo window during the week after a gap of more than a month. "As there will be no major inflow, some liquidity-strained bank may approach the central bank for it," said a dealer.