Liquidity glut to continue

OUTLOOK: Money markets

Liquidity in the banking system would continue to be surplus this week on strong foreign capital inflows, increased government spending and lack of major outflows.

As the government is yet to start its borrowing programme for the new fiscal, the money market remains awash with funds "" and would continue to be so for some time to come.

Inflows from foreign portfolio investors and proceeds from external commercial borrowings of corporates have also contributed to the liquidity.

The inflation rate is likely to be subdued for a few more weeks due to last year's base effect. This week, inflows will be to the tune of Rs 2,438 crore through coupon payments and the maturing of government securities.

The system will witness outflows of Rs 2,000 crore through issuances towards the market stabilisation scheme and government borrowings.

Meantime, liquidity management is expected to become easier with the introduction of the 182-day treasury bills in the coming fiscal.

Call rates seen easy

The inter-bank call money rates are expected to rule easy this week as the excess liquidity situation will lead to higher bids at the reverse repo auctions. Reverse repo is the instrument through which the Reserve Bank of India (RBI) sucks out excess liquidity from the system for one day.

T-bill yield may jump

The week will witness the issuance of 91-day treasury bills amounting to Rs 2,000 crore. While Rs 500 crore of this will be towards the government borrowing programme, the rest forms part of the market stabilisation operations.

The cut-off yield on the bills is likely to be higher than the market yield if the trend continues to be range-bound.

The market seems to be less excited towards treasury bills as the issuances in the coming year will be high. This is because there are no dated securities slated under the Market Stabilisation Scheme.

Recap: Bids at the reverse repo went up to a high of Rs 40,000 crore last week. The inflation rate for the week ended February 19 fell to a nine-month low of 4.83 per cent as against 5.01 per cent the week before.