Call Rates May Dance To Rbi Tunes

Dealers are expecting fresh measures from the Reserve Bank of India (RBI) regarding the Export Earner's Foreign Currency (EEFC) account, if the forex market does not cool down by Wednesday.

Call rates on Saturday opened around 15 per cent. "Lenders were quoting at Friday's level in the morning hours," said a dealer with a private sector bank. However, the rate came down later. Call rates closed around 13 per cent at the end of the day.

"Demand was thin after the first hour of trading and lenders were also not intending to hold liquidity till Tuesday, as Monday being a holiday," said a dealer.

 

On Tuesday, dealers are expecting large dollar inflows into the system as the next day is the deadline for bringing back the EEFC balances. This may cool down the forex market a bit.

"As call rates move in tandem with the forex rate, we are expecting interest rates to come down as well," said a dealer with a new private sector bank.

However, dealers are not sure to what extent the directives of RBI will be successful in cooling down the market. "But the apex bank can issue fresh instructions regarding EEFC account to curb the volatility in the market," said a dealer.

"It may even ask the exporters to liquidate the whole of their EEFC balances," he added.

As dealers expect a less volatile forex market, they expect a gradual lowering of repo rates that will push the call rates down. "Call rates on Tuesday will open over 14 per cent, it is expected to slide over the week if the rupee stabilises," said the treasury head of a private sector bank.

"Reporting Friday, which comes in this week, will also push down call rates a bit," said the treasury head.

The liquidity situation will be easier this week following the redemption and coupon payments of government securities and treasury bills.

A total amount of Rs 2,297.5 crore of inflows will come from the redemption and coupon payments. Besides the redemption of the 14-day, 91-day and 364-day treasury bills, Rs 1,597 crore will come from coupon payments of the 9.50 per cent government paper maturing in 2008, 12.40 per cent 2013, the 13.65 per cent 2007, 11.77 per cent 2009, 11.74 per cent state loans and the 13.85 per cent 2006A government securities.

There are some expected outflows from the system on account of the 14-day, 91-day and 364-day treasury bill auctions as well. Dealers are not expecting any auction of government securities during the week.