Calls May Rule Around 5%

MONEY MARKET

The interest rates in the inter-bank overnight money market are expected to rule in the region of five per cent during the course of this week.

Money market dealers point out that while there could be some tightness in the market, the impact of the advance tax outflows will not be significant.

Interestingly enough, the low call rates has spurred some activity in the term-money market.

After the initial flurry of activity subsequent to the credit policy the quotes dried up once the call rates went up beyond seven and eight per cent.

Currently, one month is available in the region of 7.25 per cent to 7.5 per cent.

 

The size of the deals is relatively small at Rs 10 crore to 15 crore.

While three-month money is also available at 10 per cent and six-month at 11.25 to 11.50 per cent there are hardly any borrowers at this level.

The liquidity overhang in the banking system ensured the issue of seven-year paper sail through comfortably at the cut-off yield of 12.59 per cent. Primary dealers were offered 18 paise per Rs 100 as underwriting fees.

The Reserve Bank had offered them Rs 500 crore for underwriting.

There was no devolvement on either the RBI or primary dealers.

Activity in the treasury bills segment will be determined by the level at which the overnight interest rates rule.

While the apex bank is offering 8.98 per cent at the auction, the secondary market yield of 364-day treasury bills maturing next April are being quoted at 8.89 per cent.

Among dated securities, the activity will be concentrated around the 12.59 per cent 2004 , the 12.14 per cent 2000 and the 12.69 per cent 2002.

The 12.59 per cent 2004 paper opened for trading in the region of Rs 100.95 but declined later to Rs 100.75.

The price of this security should appreciate to quote above Rs 101.

The Reserve Bank of India has also announced a revised sale list as part of its open market operations.

It is selling the 7.50 per cent 2010 at Rs 67.75 and the eight per cent 2010 at Rs 70.

However, there may not be any takers for these low coupon securities, because in spite of the attractive yield to maturities many banks prefer to look at the current yields.

As part of its open market operations the Reserve Bank of India is also buying the Gold Bonds maturing in 1998 at Rs 3955.90 per 10 grams.