Forex inflows seen comfortable

OUTLOOK: Money markets

The beginning of the government's expenditure programme is expected to bring back liquidity into the system this week.

Advance taxes have resulted in outflows of around Rs 15,000 crore, which have made a dent on the banking system liquidity.

Foreign exchange inflows are expected to be at comfortable levels, though there will be a rush for dollar funds to cover up month-end payment obligations. The inflows will mostly accrue from domestic banks and corporates which are likely to bring in their dollar borrowings to India.

There will be outflows of Rs 4,000 crore towards the auction of the treasury bills, while the system has witnessed inflows to the tune of Rs 620.68 crore.

The inflation rate continues to be a concern following the uncertainty over oil prices. According to dealers, rising oil prices and global tightening of interest rates are putting pressure on the domestic interest rate.

Easy run for call rates

The interbank call money rates are seen in a comfortable range of around 4.6-4.75 per cent. Dealers said there could be occasional spikes in call rates towards the end of the financial year.

This is because some banks might face liquidity mismatch. However, these will be felt only at the intra-day level and may wane gradually.

Market-related t-bill yields ahead

The week will witness the auctions of the 91-day and 364-day treasury bills for Rs 2,000 crore each. Of the 91-day bill auction proceedings, Rs 500 crore will go towards the government's borrowing programme and the rest will form part of the market stabilisation scheme (MSS).

The 364-day bill auction will see Rs 1,000 crore each going towards the government's borrowing programme and the MSS. The cut-off yields at the auctions will be market-related.

Recap: Call rates zoomed to five per cent last week and reverse repo bids came down to Rs 12,000 crore due to advance tax outflows. Inflation rate for the week ended March 11 touched 5.23 per cent as against 5.30 per cent in the previous week.

The inflation rate has started going up following the rise in crude prices which went up to around $55 per barrel.