Call money is expected to rule soft in the 6.50-6.60 per cent range this week on the back of easy liquidity in the banking system.
The refinance availed of by the commercial banks from the Reserve Bank of India (RBI) is expected to fall substantially as call rate is hovering around the repo rate.
Money market dealers attribute abundant liquidity in the banking system to a host of factors including healthy foreign exchange inflows, poor credit offtake from commercial banks, tax outflows of December 2001 coming back into the banking system and pressure on the ministries/ government-backed institutions to spend their budgetary allocations in view of the approaching March 31 deadline.
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"The availability of funds is such that it more than matches the current demand. With overnight rate hovering around the repo rate of 6.50 per cent, banks will return the refinance availed from the central bank," said a dealer with a public sector bank.
"With there being no arbitrage opportunities between call and refinance rates, it does not make sense to borrow at refinance rate and deploy the funds back in the call market. After all one has also to consider the borrowing costs involved," he explained.
The refinance availed from the central bank has come down from Rs 4,900 crore on Friday to Rs 4,588 crore on Saturday.
According to a dealer with a private sector bank, the commercial banks had already covered their three-day funds requirement on Friday, hence the market was flat and dull on Saturday in the 6.50-6.60 per cent range. "Liquidity in the money market will be comfortable as no major outflows (auction announcements) by the apex bank is expected during the week," he said.
"Only about Rs 5,000 crore needs to be mopped up by the Union government for completing its borrowing programme. The government can mop it up any time due to easy liquidity expected to prevail for quiet some time," a dealer pointed out.
The approaching Friday is a reporting Friday and majority of the commercial banks have built up products, he added.