Traders edgy over advance tax, Re may dip

WEEKLY MONEY & CURRENCIES

Liquidity: No strain
Liquidity in the system may remain comfortable this week, but market players will be cautious as outflow towards the advance tax is slated next week.

Liquidity has been comfortable following the government expenditure, resulting in the central government's deposits with the Reserve Bank of India (RBI) falling from Rs 54,209 crore to Rs 48,638 crore as on February 29.

In this backdrop, the system will witness an inflow of Rs 2,962 crore through coupon redemption as against an outflow of Rs 1,500 crore.

Call: In a range
Call rates, at which banks lend and borrow from the market, may fall as the pressure on liquidity is likely to ease. Call rates are expected to rule in the range of 6 to 6.5 per cent. However, they will firm up before weekend, when payment towards the advance tax happens.

T-bills: High demand
RBI will auction the 91- and 264-day treasury bills only for government borrowing. There are no additional bonds or treasury bills being auctioned for absorbing liquidity under the Market Stabilisation Scheme (MSS).

Cut-off yields on treasury bills are expected to inch up higher by 3-5 basis points as there will be apprehension on short-term liquidity.

In the secondary market, banks will continue to buy T-bills.

G-sec: Range-bound
The government securities (G-sec) market is expected to rule with a bearish outlook. Inflation, higher at 5 per cent, has been a major concern and dealers feel this may force RBI to continue with a tight liquidity stance as an anti-inflationary measure.

Demand to maintain government securities for statutory liquidity requirement (SLR) is not very strong as the credit growth has been marginal year over year. However, banks may buy securities to sell them to RBI under the repo window for raising funds next week.

In this backdrop, the benchmark ten-year paper will move in a range of 7.55-7.65 per cent.

Rupee: Seen weak
The spot rupee-dollar exchange rate is likely to rule with a bias towards depreciation. According to dealers, the equity market is expected to witness some correction and this may trigger a demand for dollars from portfolio investors.

There will be continuous demand for dollars from oil companies.

In this backdrop, the rupee-dollar rate is expected to rule in a range of 40.20-40.70 to a dollar.