Call To Rule In 9-11% Band

MONEY MARKET

The interest rate in the inter bank overnight money market is expected to rule at an average of 9 per cent - 11 per cent.

The liquidity position has eased considerably and no upward pressure on overnight rates is expected.

On Saturday, call money rates not only breached the 9 per cent floor but slipped to 8 per cent.

There was an improvement in the mop-ups by Reserve Bank of India (RBI) at the repos.

At the 3-day 9 per cent fixed rate repos on Saturday, RBI received 8 bids for Rs 1,170 crore. It remains to be seen what would be the impact of these flows when the money market opens on Monday.

 

At the same time there are outflows scheduled for Tuesday, the spot date for the sell buy swaps transacted by Reserve Bank.

Last week, the call rates declined continuously, principally on account of augmenting of rupee resources after RBI had intervened in the forex market through buy sell swaps on a cash basis.

It is understood that this measure was resorted to ensure that banks did not default on their cash reserve ratio requirements.

Subsequently call rates repeatedly breached the 9 per cent floor and RBI decided to undertake sell buy swaps in the foreign exchange market with a view to sucking out liquidity.

But till date the RBIs change in stance has not made a significant difference to the liquidity position in the money market.

At the weeks auction of 14-day and 91-day treasury bills, the Reserve Bank retained the cut off yield at 7.32 per cent and 7.35 per cent respectively.

At the auction of 91-day treasury bills against the notified amount of Rs 100 crore, there was devolvement to the tune of Rs 73.35 crore on the Reserve Bank. The RBI raised Rs 175 crore at the auction of 14-day treasury bills.

Subsequent to the decline in call money rate, prices of securities improved while the yields on treasury bills in the secondary market declined.

The yields on treasury bills maturing on April 24 declined to 12.01 per cent.

Money market dealers suggest that a further reduction in the yields would be difficult because of resistance from sellers.

During the course of this week, securities prices are expected to rule steady. Buyers are expected to exercise caution.

With some uncertainty about interest rates at the far end, activity will be concentrated at the short end.