Outflows to overwhelm inflows

OUTLOOK: Money markets

The inter-bank market could witness a slight tightness in liquidity following Rs 18,000-crore odd outflows this week.

These include Rs 6,000-7,000 crore towards advance tax, Rs 5,000 crore towards scheduled government auction, Rs 2,480 crore towards state government loan auction and Rs 3,500 on account of auction of treasury bills.

Inflows, on the other hand, will be of Rs 908.59 crore only.

Additionally, foreign exchange inflows have taken a backseat as exporters as well as the corporates holding proceeds of overseas borrowing are reluctant to bring in their money.

"This is because they perceive a pressure on the spot rupee", said a dealer.

The inflation front, on the other hand, has been comforting as the forthcoming weeks are set to benefit from a huge base effect. Additionally, there has been fall in global commodity prices.

Global crude oil prices remain a concern, though. It is felt that oil prices will stabilise round $50 per barrel barring temporary spikes.

Therefore, on the interest rate front, there is a view that interest rates may remain stable and may not go up very high in the short term.

Call rates braced for a rise

The call money rate at which banks lend and borrow for their daily fund management is likely to dart up to around 6 per cent owing to substantial outflows from the banking system.

But the rates are expected to moderate towards the latter part of the week when the outflows will start reverting.

Two treasury bill auctions slated

Two sets of treasury bill auctions are scheduled this week. The 91-day bill on auction would mop up Rs 2,000 crore. Of this, Rs 500 crore would go for the government borrowing programme, while the balance Rs 1,500 crore would be for the market stabilisation scheme.

There will also be a Rs 1,500 crore auction of 182-day treasury bills. The yields at both the auctions are expected to be market-related.

Recap: Call rates hardened towards the end of last week on reporting Friday considerations. Inflation stood at 5.2 per cent for the week ended May 28 as against 5.32 per cent in the week before. Reverse repo bids came down to around Rs 13,000-14,000 crore during the week.