No Spike Presaged In Rates

Call money rates are unlikely to tighten to any great degree this week despite an expected outflow of Rs 5,000 crore on account of a government securities auction of 11-year paper.

Call rates are expected to stay at around 8 per cent in the initial part of the week and come down gradually later. Rates are expected to be ranged between 7.75 per cent and 8.5 per cent for the week.

There is an inflow of Rs 3,000 crore on account of redemption of the 12.14 per cent 2000 security. An additional Rs 942.78-crore inflow is expected due to coupons on government securities and redemption of treasury bills. "If there is a devolvement in the auction and the liquidity situation is not badly impacted, call rates could even fall to 7 per cent levels," said a dealer with a private bank.

 

Call rates touched levels of 8.70 per cent last week due to volatility in exchange rates. Any possible intervention in the following week by the Reserve Bank of India (RBI) through nationalised banks to stem the rupee's slide will also impact liquidity and, therefore, call money rates.

Besides a possible outflow of Rs 5,000 crore on account of the 11-year paper auction, other outflows over the next week are to the tune of Rs 700 crore on account of treasury bill auctions.

However, despite the fact that outflows exceed inflows for the week, call rates are expected in a narrow range. Dealers say most players have already covered themselves. "Following the experience last fortnight when most people rushed to cover themselves at the last minute following introduction of the 65 per cent levels on daily maintenance of cash reserve ratio (CRR) balances, market players have become more cautious this time round," said a dealer with a private bank.

The RBI had announced in its credit policy in April that banks need maintain only up to 65 per cent of their daily CRR balances rather than 85 per cent as was the norm earlier. This move led to volatility in call rates as banks rushed to cover themselves at the last moment.

Moreover, many market players feel that, rather than issue the entire amount to the market at a high rate, the central bank may choose to take a devolvement, in which case, liquidity would not be impacted so seriously.