| LIQUIDITY No cause for worry |
| Liquidity is unlikely to remain an issue this week. The new financial year is expected to start with the government spending and redemption of government securities, besides unwinding of funds mopped up through the market stabilisation scheme. |
| Foreign exchange inflows through foreign institutional investors (FIIs) are expected to be a major source of funds. This is because the Reserve Bank of India is actively buying dollars to stock it up for oil payments in future, said dealers. |
| This will also help prevent sharp appreciation of the local currency, affecting exports. The end result is that rupee resources get released into the system. |
| Even as there is an improvement in liquidity, the outlook remains bearish as the interest rates are expected to go up, feel dealers. |
| There will be an outflow of Rs 1,000 crore through treasury bill auction as against an inflow of Rs 2,143 crore. |
| MONEY MARKETS Further dip likely |
| Call rates (rates at which banks borrow and lend for daily fund requirement) will continue to ease for some more time following the lax liquidity situation. Banks had piled up funds towards the year-end. |
| No major outflows are slated for this week as well. Interest rates on other money market instruments such as collateralised lending and borrowing obligations will also decline in line with the call rates. |
| TREASURY BILLS Demand from banks seen |
| The government will auction 91-day and 182-day t-bills for Rs 500 crore each as part of the regular government borrowing programme. |
| There is likely to be good demand for treasury bills in the secondary market from banks who prefer to carry portfolio with short-term instruments till the interest rate structure stabilises. |
| This is because adverse interest rate movements affect long-term instruments more than those with short term. |
| Recap: Last week, the cut-off yield of the 91-day t-bill auction was set at 6.10 per cent as against 6.52 per cent the week before. |
| The RBI extended the third tranche of liquidity adjustment facility to the market. The apex bank absorbed Rs 19,756 crore as against infusing Rs 12,515 crore. |
| GOVERNMENT SECURITIES Hike fears loom |
| The gilt market will continue to reel under bearish sentiment as interest rate is expected to harden further. The market is expecting 25 basis points hike in the reverse repo rate, which is currently at 5.50 per cent. |
| Concerns over an oil price hike and rise in the US treasury bonds have already been factored in. The market is shying away from further purchases of government securities as it expects a lot of supplies in the current borrowing programme. |
| Above all, dealers are awaiting interest rate cues from the RBI, expected to come out in its monetary policy on April 18. In this backdrop, the ten-year yield is expected to rule in the range of 7.49-7.57 against the dollar. |
| Recap: The gilt market turned bearish even as the liquidity improved. Rising yields on the US treasury bonds, spike in oil prices and financial year end blues led to lacklustre trading and a sharp increase in yields. The ten-year paper closed at 7.55 per cent. |
| CORPORATE BONDS To stay lacklustre |
| The corporate bond market is likely to remain lacklustre as borrowers are likely to wait for the interest rate scenario to unfold in the new financial year. |
| Moreover, corporates are eagerly waiting for the monetary policy to be out to finalise their borrowing plan. The secondary market may not witness much demand from investors. |
| Demand will come mainly from those entities for which investment in corporate bonds is mandatory. They are provident funds, mutual funds, pension funds and insurance companies. Banks will wait for new issues to hit the market. |
| Till the time the interest rate scenario stabilises (i.e. till the monetary policy), commercial papers will be corporates' favourites, since they are short term instruments. |
| Moreover, in a rising interest rate scenario, corporates are not in favour of locking themselves in fixed interest rate for longer maturity. |
| Recap: The spread between the five-year triple-A corporate bond and the underlying government security is currently ruling at 80 basis points. |
| For the week ended March 15, 685 CPs worth Rs 12,862 crore were issued and banks floated 1,243 CDs to raise Rs 34,487crore. |
| CURRENCY RBI to rein in Re rise |
| Foreign institutional investors' ( FIIs) inflows are expected to push the spot rupee high but dollar buying by public sector banks on behalf of the RBI will balance the rupee's rise. |
| According to sources, the RBI has been stocking up dollars to make oil payments. This may continue for some more time. Moreover, with a growth in outward investments, surplus reserves need to be maintained as a cushion. |
| It could be mentioned that oil payments have led to a deficit in the current account which currently stays at $3.85 billion. The dollar is expected to remain rangebound globally on expectations of an interest rate hike by the Federal Reserve. This might act in favour of the spot rupee as well, feel analysts. |
| The market expects the Fed to further hike the base rate by a quarter per cent in the next Open Market Committee meeting. In this backdrop, the spot rupee is expected to rule in the 44.50-44.65 band against the greenback. |
| The premiums on the dollars booked for forward months are likely to come down with the easy liquidity situation. Moreover, if the spot rupee depreciates, exporters might see an opportunity to sell dollars which could further bring down the premiums. |
| Recap: The spot rupee remained rangebound during the week, opening at 44.60/44.61 and closing at 44.62. |
| While foreign exchange inflows helped the local currency hold firm against the dollar, the RBI's intervention in the forex market pulled it down. The premiums on forward dollars came off with easing liquidity position. |
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