Stable liquidity situation ahead

OUTLOOK/ Money markets

Liquidity in the banking system is expected to be comfortable this week. Outflows owing to the auction of treasury bills this week would be offset by inflows from the maturity of earlier bills.

The pace of foreign exchange inflows is expected to slow down owing to the not-so-satisfactory US jobs data released on January 7.

Though this has no direct correlation with the local markets, dealers said they are keeping the numbers and allied developments in mind.

"Even if forex inflows are not translating into liquidity in the money market, it is definitely providing support to the overall liquidity situation in the banking system and thereby boosting the sentiment," said a dealer.

Call rates may rule easy

Call rates are likely to rule soft this week. The easy rates will be supported by a surplus liquidity of Rs 25,000-30,000 crore currently in the banking system.

Even if there is an on-tap-sale of government securities this week, there would still be enough funds for the smooth sailing of the state government loans programme, analysts said.

Treasury bill yields may slip

There will be an auction of 91-day treasury bills for Rs 2,000 crore this week. While Rs 500 crore of this will meet the government's borrowing programme, the market stabilisation scheme will absorb the rest.

Brisk trade in treasury bills is likely to pull down the yields at the forthcoming auction. The instrument has caught the fancy of players as the outlook on interest rates on long-term paper remains uncertain.

Recap: Last week saw a surge in liquidity with the reverse repo bids rising to Rs 30,000 crore compared with Rs 2,000-5,000 crore in the week preceding the last. Call rates softened to 3-3.5 per cent after having crossed the repo rate of six per cent in the week preceding the last.

The inflation rate for the week ended December 24 came down to 6.39 per cent.