Fund-Flush Should Keep Call Rates Down

Interbank call money rates are expected to stay steady and hover in the 6.85-7.10 per cent range this week on the back of easy liquidity in the market.

Liquidity will be ample as dealers are not expecting any auction (which could lead to a significant outflow from the system) in the next couple of weeks.

The government has already pushed through 65 per cent of its borrowing programme of Rs 1,19,000 crore in the four months of the current fiscal.

"Call rates will be rangebound this week, which happens to be the beginning of the new reporting fortnight. Though overnight rates might open at the 7 to 7.10 per cent levels, they should cool off to 6.75-6.85 per cent levels," said a dealer with a private sector bank.

 

He attributed the ample liquidity in the banking system to good deposit inflows -- thanks to the small investors shying away from the stock markets and badla finance money coming into the system -- coupled with inflows from coupon payments.

"There will be no liquidity shortage in the market. With ways and means advances under control, the chances of the central government announcing an auction in the coming fortnight are little. Moreover, the Centre's coffers will see a significant accrual as the Reserve Bank of India (RBI) is expected to pay its annual dividend to the government for the financial year ended March 31, 2001," said another money market dealer.

The absence of outflows -- and hence the good liquidity -- will ensure that call money rates remain rangebound. Last week rates hovered in the 6.75 to 7.10 per cent range.

On Wednesday, call rates edged up to 7.00-7.10 per cent on the back of higher demand for funds to cover reserve requirements ahead of the reporting Friday.