With liquidity easing following the Reserve Bank of India’s measures to increase availability of funds and conducting an open market operation, overnight call money rates and other short-term rates are likely to begin falling, say some bankers.
About Rs 8,350 crore was injected as the central bank purchased securities sold by banks in the open market operation on Thursday, in response to RBI’s offer to acquire Rs 12,000 crore of securities. The response was better than a similar operation on October 25, where RBI accepted bids to inject Rs 2,148 crore.
“Liquidity will improve on RBI measures and as banks raise deposit rates and make efforts to mobilise funds,’’ said Rupa Rege-Nitsure, chief economist at Bank of Baroda. “Also, the effect of the mismatch created by the Coal India IPO will wear off now and liquidity will return to the system.”
Short-term rates surged and uncertainty rose as funds moved to the Coal India public issue, prompting RBI to open a second liquidity adjustment facility and also waive the penalty on a shortfall in the Statutory Liquidity Ratio, of up to one per cent of net demand and time liabilities, for the week to November 4. Overnight call money rates, which shot up to 12 per cent a week earlier and as high as seven per cent last week, will tend to ease back to close to six per cent, bankers say.
The rupee may tend to move towards strengthening after the US Federal Reserve announced its plan to buy back $600 billion of bonds to inject more liquidity, to revive economic activity in the world’s largest economy.
The rupee, at 44.22 per dollar, could gain to test the 44 per dollar level during the week. Bankers expect RBI to prevent the rupee from rising too much, too fast.