Call rates will remain slightly higher in the 6.70-7 per cent range on the back of tight liquidity due to the repeated open market operation (OMO) auctions by the Reserve Bank of India (RBI) in the previous week. Money market dealers said that though the demand will be lower as it is the second week of the reporting fortnight, the supply will be scarce too.
A primary dealer said, "Till the previous week, there was comfortable liquidity in the system mainly due to the accretion of deposits with the commercial banks. But after the open market auction of Rs 8,000 crore on Friday it is now a bit tight. Had it been the first week of the reporting fortnight, overnight rates could have gone over seven per cent as well."
The treasury head of a private sector bank said, "The RBI has already mopped up huge amount of liquidity from the banking system. But this will be compensated by the dollar inflow and will be resulting in raising foreign exchange reserves of the central bank. Hence, though overnight rates will harden, it will not go up too much." He assumes that a large part of the mopping up will be done through the state-run banks.
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There will be very little inflow of Rs 575.45 crore on account of the coupon payment of government security during the week which will not be sufficient to keep call rates low. Market participants are divided over the possibility of yet another open market auction during the week.
A dealer with a private sector bank said, "The RBI failed to mop up the amount what it intended as the auction on Friday was undersubscribed. We feel that the central bank will try to garner the remaining amount through another auction."
Another private sector bank dealer, however, said, "The RBI is not comfortable with the very low yields, but it does not want it to harden much either. We feel that the apex bank has done its bit and will refrain from conducting another open market sale in the next two weeks."
Call rates hovered in the range of 6.70-6.90 per cent on Saturday on the back of tight liquidity situation in the market due to the auction outflow on Friday. The situation will remain static during the week as well.