Liquidity To Keep Call Calm

MONEY MARKET

The interest rate in the overnight inter-bank money market has now been narrowed down to 5-7 per cent band, with the Reserve Bank of India (RBI) repo rate forming the floor and the export refinance rate the ceiling. In view of the large liquidity in the system, call rate during the week is expected to hover around 6 per cent with downward pressure.

The Resurgent India Bonds (RIBs) issue has opened for subscription last week and the already comfortable liquidity prior to these inflows is expected to swell. The anticipation of the RIB inflows also seems to have assuaged concerns on the interest rate front, fuelling sentiment in a market that was bogged down by interest rate uncertainty until recently.

 

The result has been a rally in prices of all short-dated maturities and signs of a revival of interest in medium-dated gilts. Market players feel trading at the longer end may also start looking up this week.

At the auction of four-year paper last Wednesday, the Reserve Bank gave a cut-off yield of 11.68 per cent, a rate at which the issue sailed through without a devolvement. As recently as July 23, the RBI had given a yield of 11.95 per cent for six-year paper, which saw a devolvement. This indicates that the market perception of yields has reversed since then.

The RBI has also lowered the implicit cut-off yields at the auctions of short-dated treasury bills on Friday. It gave an implicit cut off yield of 6.01 per cent for 14-day treasury bills and 7.52 per cent for 91-day treasury bills.

On Saturday, the the central bank received and accepted one bid for Rs 395 crore.

While this amount comes in on Tuesday, there is around Rs 4,500 crore slated to come in today on account of repo reversals that were conducted on Thursday and Friday last. There is also a redemption of a 364-day t-bill for Rs 1,073 crore on August 14.

The call rate opened at 6 -6.25 per cent on Saturday and ruled at 5.90-6.10 per cent. Call rate closed in the 5.75 per cent - 6 per cent range.

The weighted average call rate of the Securities Trading Corporation of India (STCI) was 6.04 per cent on a turnover of Rs 1,500 crore.

The rally in the prices of short dated stocks continued with the 11.55 per cent 2001 being traded up to a premium of 33 paise, the 11.68 per cent 2002 at Rs 100.25, and the 11.95 per cent 2004 at Rs 100.28-29, marginally below the price offered by the Reserve Bank.