On Saturday, calls opened at 7 per cent but later closed lower at 5 per cent. However, the rates are likely to stabilise above 4.6 per cent during the course of the week. A number of banks and financial institutions may continue lending funds as the liquidity position is perceived to be easy.
In the government securities market, the 91-day treasury bills and the shorter- dated securities are the instruments which are likely to catch the fancy of investors.
If the liquidity in the system remains adequate, the Reserve Bank of India may push the cut-off yield on the 91-day treasury bills a shade lower than the present figure of 10 per cent.
Further, advance tax outflows, estimated at Rs 2,500 crore, are slated to occur during the fortnight.
However, with ample liquidity in the system, this is unlikely to lead to an undue escalation in rates.
In the previous fortnight, the rates had slumped extremely low, falling the below the 2-per cent mark.
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When this happened, a few banks and financial institutions appeared to be parking their funds in the 14-day `on tap' paper, primarily because the it fetches them a yield of 4.6 per cent, when held till maturity.
Even if the money is invested for two days, the investor can reap a yield higher than 1.5 per cent. With this option open to them, several banks were not lending funds in the call market below 2 per cent on August 29, when the rates touched 0.5 per cent. Banks and financial institutions, apparently rediscovering the virtues of the instrument, have started parking their funds in them.
Trading in other money market instruments remained subdued. The inter- corporate deposit market was reportedly fraught with defaults as many companies were unable to meet their liabilities.
Dealers expect that the next batch of government borrowing programme will come through in this fortnight. It is expected that this would be a 364-day treasury bill, the cut-off yield on which was maintained at 12.65 per cent.
Not much interest was evinced in the one-year paper, though a number of purchases were reportedly being made from the secondary market.
However, dealers were of the opinion that the paper will be selling at a premium in a shortly.
Primary dealers were of the opinion that the interest for all the government securities in the primary auctions would be on the wane. This, because banks prefer to buy the paper in the secondary market at a later date.