Call Seen In 7-7.25% Band

MONEY MARKET

Call money rates are expected to remain range-bound for the following week despite the big outflows on account of the government bond auction on Monday. Call rates are expected to be in a range of 7-7.25 per cent for the following week.

A total outflow of Rs 5,700 crore, on account of government securities auctions next week, is likely to lead to only a minor tightness in the call money rates. An auction of Rs 2,500-crore each of two securities of 11.10 per cent 2003 and 11.68 per cent 2006 is due on Monday - the outflow of which is due on Tuesday.

 

Dealers say the auction is likely to pass off smoothly due to the fact that both papers are of a short tenor. Trading interest in the market is strong in short and medium tenor gilts while longer tenors are seeing little interest.

"Liquidity is substantial in the money markets, so despite the outflow on account of the auction, the call rates are expected to see only a minor tightening," said a dealer with a private bank.

Last week was the first time that bankers were allowed to maintain only 65 per cent of their cash reserve ratio (CRR) balances on a daily basis as opposed to 85 per cent earlier. The move, which was announced by the Reserve Bank of India (RBI) in its latest credit policy, is expected to allow banks to adopt a more flexible approach to monetary management. But bankers say it could also lead to a volatility in the call money rates. But with liquidity being in abundance, this effect is not likely to manifest itself now.

A big inflow of Rs 3,000 crore is expected next week on account of the second leg of a repo transaction conducted last week. Besides this, a total of Rs 1,493.48-crore worth of inflows are expected next week due to coupons on government securities of various maturities including the 11.55 per cent 2002, 11 per cent 2004, 6.75 per cent 2006 and 13.50 per cent 2003.

Most of the coupon inflows next week are due on May 15, when a total inflow of Rs 1,158.26 crore is seen.

On the outflows side, besides the Rs 5,000-crore auction, a total of Rs 700 crore will go out of the market due to auctions of treasury bills. A total of Rs 200-crore worth of outflows will be due on that date because of 14-day and 91-day treasury bill auctions. May 19 will see an outflow of Rs 500 crore on account of a 364-day treasury bill.