Crr Cut To Ease Call Rates

Call rates are likely to come down and stay in the 8-8.75 per cent region this week on the back of a 50 basis point cut in cash reserve ratio (CRR) to 7.5 per cent.

The liquidity situation, which has been worsening since the beginning of May, is likely to improve following the cut in CRR on Saturday.

Call rates remained in the 8.50-9.10 per cent band on Saturday. A primary dealer said, "Most of the players had covered their positions for three days on Friday and hence there was less demand for overnight money. However, as there was no reverse repo auction on Saturday, the overnight rates remained high, though lower than Friday's level."

 

Though the CRR cut will provide some comfort to the liquidity situation, dealers said that it will be countered by another auction during the week. A dealer with a new private sector bank said, "The latest ways and means advances (WMA) figure released by the RBI on Saturday showed that the central government once again needs another auction."

The WMA was at Rs 9,109 crore on May 4 as against the limit of Rs 10,000 crore. Dealers are expecting an auction of at least Rs 3,000 crore during the week.

In addition to the CRR cut, dealers expect the central bank to continue its support to the liquidity situation through reverse repo auctions. A dealer said, "The RBI is likely to infuse liquidity through reverse repos to check the rise in call money rates."

Call rates are also likely to slip later in the week with the approaching reporting fortnight. The chief dealer at a private sector bank said, "The coming week being the second week of the reporting fortnight, demand in the call money market will remain low. It will come down drastically in the second half of the week as most of the players are expected to cover their positions by then."

Some dealers, however, blamed that the new liquidity facility will lead to high call rates.

A senior dealer said, "After the introduction of the new liquidity system, the back-stop facility rate has become the ceiling for call rates and pushed up the overnight rates in effect."