Eyes on $, Fed panel meet, crude oil

OUTLOOK/ MONEY MARKETS

Liquidity in the banking system is likely to remain easy with no major government expenditure and outflow on the cards.

Subscriptions to reverse repo, the tool used by the Reserve Bank of India (RBI) to suck out daily excess liquidity from the banking system, is expected to be in the range of Rs 13,000-15,000 crore.

Dealers said the bids could have been more but this week, banks are likely buy more government securities.

"With both the oil prices and inflation coming down, there is a good opportunity to take positions in the gilts market," said a primary dealer.

The inflation rate is likely to be moderate, thanks to the base effect and other developments.

The outflow of funds from the banking system this week is estimated to be at Rs 2,000 crore towards treasury bills auction. On the other hand, there will not be any major inflows apart from coupon redemptions and maturity of government securities.

Liquidity to curb call money rates

The call money rates, at which banks lend and borrow funds daily, are likely to rule soft given the cash surplus in the banking system. repo bids have been indicative of the comfortable liquidity situation in the market.

The overnight fund rate is expected to trade below the 4.75-6 per cent corridor between the reverse repo and the repo rate.

T-bills to draw trading interest

There will a 91-day treasury bill auction this week for about Rs 2000 crore. Of the amount, Rs 500 crore bills will be auctioned towards the government borrowing programme, while another Rs 1,000 crore will form part of the market stabilisation scheme (MSS).

"The cut-off yield will be not be much different from what was announced the last time," said players.

This is because, backed by liquidity, there seems to be a good trading interest for treasury bills, which naturally keeps the yields down.

Recap: Inter bank call rates ruled easy for most part of last week at 4.35-4.70 per cent owing to easy liquidity. Daily reverse repo bids ranged between Rs 16,000 and Rs 20,000 crore.

The cut-off yields for the 91-day and 364-day treasury bills were as per the market expectations but higher than the rates announced at the preceding auction.

Last week, the 91-day and 364-day bills were auctioned at cut-off yields of 5.35 per cent and 5.75 per cent, respectively.