Liquidity to get a boost

MONEY MARKETS

Dealers are confident of a surge in liquidity in the banking system this week. The liquidity will be supported by government expenditure, which will lead to the return of funds sucked out as part of advance tax outflows and borrowing programme back into the system.

Even if there is a scheduled auction slated between July 1 and 8, it is unlikely that it will be announced this week, a dealer said. He added that, once the liquidity comes back into the system, the government will be comfortable with the auction.

There will be an outflow of Rs 3,500 crore towards treasury bill auctions, while inflows from coupon redemption and government bonds maturity add up to Rs 3961 crore.

Inflation will continue to remain benign due to the base effect even as oil prices remain high.

Call rates seen easy

Interbank call, the rate at which the banks borrow and lend funds for their daily funds management, is expected to be easy with the expected surge of liquidity.

This is because liquidity sucked out from the system towards advance tax outflows, government auction and reserve requirements during the reporting Friday is likely to come back to the system as part of government expenditure.

The call rates might edge up a bit if the government announces its borrowing programme for raising Rs 10,000 crore during the week.

Treasury bills

There are two set of treasury bill auctions slated for this week. While 91-day treasury bills will be auctioned for Rs 2000 crore "" Rs 500 crore of government borrowing and Rs 1500 crore of market stabilisation scheme, another Rs 1500 crore will be absorbed through the 182-day T-bills. The treasury bill cut-offs is expected to be in line with market expectations.

Recap: Interbank call rates touched a high of 5.15 per cent last week when banks had to provide for reserve requirements for the fortnight. Liquidity came down in the system and reverse repo bids figured at Rs 8000-9000 crore. Brisk trading continued in treasury bills.