Funds-flush run continues

MONEY MARKETS

Liquidity is the main factor keeping the Indian financial market buoyant. Foreign portfolio inflows and proceeds of corporate fund raising abroad will make up for a major part of the short-term liquidity.

Moreover, the government is maintaining surplus credit with the Reserve Bank of India (RBI) and these funds will flow into the system once government expenditure starts.

While oil prices remain a concern, the market takes comfort from the base effect, which is likely to push down inflation.

There is an outflow of Rs 11,500 crore from the banking system this week compared with an inflow of Rs 1,972 crore.

The government starts its borrowing programme this week with the reissuance of two papers "" the 6.85 per cent 2012 and the 7.95 per cent 2032 "" for notified amounts of Rs 5,000 crore and Rs 3,000 crore, respectively.

Another easy week for call rate

The call money rate, at which the banks lend and borrow money for their daily funds management, is likely to rule easy this week. However, the rate might go up as there is an outflow of Rs 11,500 crore this week. Gradually, as and when banks move to build their portfolio, there could be a reduction in liquidity.

At present there is a big surplus in the system as banks have offoaded their positions for market valuation reasons as also to enter the new financial year 'light', said dealers.

Treasury bills

The government has introduced 182-day treasury bills as part of the borrowing programme and market stabilising scheme. Thus, from now on, there would be three sets of treasury bills "" 91-day, 182-day and 364-day.

This is to help develop the term money yield curve. Meantime, there would be auctions a 91-day issue for Rs 2,000 crore and a 182-day bill for Rs 1,500 crore.

Of this, the market stabilisation scheme will absorb Rs 1,500 crore through the 91-day float and Rs 1,000 crore through 364-day instrument.

Recap: The RBI announced a cut-off yield of 5.62 per cent at the auction of the 364 day treasury bill. Banking system liquidity remained surplus "" as bared by the average reverse repo bids of Rs 30,000 crore last week.

During the financial year end, the call rates inched up for a brief while.