Calls May Rule In 4-10% Range

MONEY MARKET

There is uncertainty about the level at which the interest rates in the call money market will prevail in the coming week. The expectation varies from four per cent to 10 per cent.

However, majority of the money market feels the liquidity in the money market will improve on account of the intervention by the Reserve Bank of India (RBI) in the forex markets.

The RBI has been mopping up dollars from the market in exchange for rupees with a view to keep the latter from appreciating.

With the call rates moving erratically, the activity in the inter-bank term money market slowed down to a trickle. With borrowers willing to pay six to eight per cent for three-day money, the repos auction lost their significance. In the last three repos auction the RBI rejected all the bids it received.

 

During the last week the call rates have hovered in the band of eight to 10 per cent except on Friday (reporting day for the banks) when it came down to 1.5 per cent.

Part of the increase in the rates is on account of lenders prefering to stay away from the market.

The cut-off rates at the auction of 364-day treasury bills continued to be at nine per cent.

However, there was a drastic reduction in the bids tendered and accepted at the auctions.

The RBI accepted bids to the tune of Rs 35 crore against over Rs 2,000 crore in the earlier auctions.

Unless the cut-off yields on the 364-day treasury bills go up, there will be lack of interest in this instruments among the banks.

At the auction of 91-day treasury bills there was devolvement to the extent of Rs 45 crore. The cut-off yields continued to be at 6.23 per cent.

The volatility in the call rates has ensured that the activity in the treasury bills be sluggish.

Banks do not find it a commercially viable proposition to fund their treasury bills portfolio under such circumstances.

Whether the secondary market activity in the gilts market picks up or not will be totally dependent on the call rates.

The apex bank had fixed the coupon on five-year paper at 12.69 crore and there was a devolvement of Rs 986.98 crore.

The reserve Bank of India has maintained the cut-off at close to the secondary market levels.

This paper was being quoted at a premium of 20 paise as part of trades that will be reported today.

During the course of last week the prices of securities appreciated marginally across all maturities by 20 to 30 paise.

It is possible that the price rise could continue and yields move downwards.