Inflation rate may ease despite freight hike

OUTLOOK/ MONEY MARKETS

The inflation rate is expected to be ease this week. However traders are wary of predicting the extent of the dip following the government's decision to increase freight rates to offset higher fuel and steel prices.

The Centre's move to go back on its proposal to increase prices of cooking gas by Rs 5 a cylinder every month will help calm down the inflation rate.

Moreover, the Cabinet's decision to put on hold an increase in prices of natural gas for power and fertiliser units will pull down inflation.

The headline inflation rate is expected to dip to around 7.20-7.30 per cent, said an analyst.

The market will see an outflow of Rs 8,000 crore through a scheduled auction between December 1 and December 8. Rs 500 crore will also flow out of the system through the 91-day T-bill auction. Meanwhile, an inflow of Rs 3,058 crore is expected via coupon redemptions.

The central banks decision to cancel the 91 day T-bill auction under the market stabilisation scheme will also boost the liquidity in the system.

Call money rates set to soften
Interbank call money rates are likely to stay in the 4.75 to 4.85 per cent range his week on the back of ample liquidity in the banking system.

The softening in rates will be aided by the surge in foreign exchange inflows, cash balances with bank and the cancellation of the 91-day T-bill auction under the market stabilisation scheme.

Hectic activity expected in treasury bills mart
The Reserve Bank of India cancelled the treasury bill auction slated for December 1 under the quarterly indicative schedule for the market stabilisation scheme (MSS). A Rs 1,500-crore 91-day T-bill auction was scheduled under the MSS.

The central bank will, however, conduct the T-bill auction as part of the government borrowing programme. It will auction 91 T-bills worth Rs 500 crore on December 1.

The treasury bill market continues to see hectic activity. Foreign institutional investor investments in T-bills has seen a rise on account of the high interest rate arbitrage.

Recap: Interbank call money rates ended the week in the range of 4.70 to 4.90 per cent compared with 5.75 to 6.00 per cent in the previous week.

The overnight rates eased on account of intervention by the central bank in the forex market.