Call Likely In 9-9.25% Band

MONEY MARKET

The call money rate is expected to rule at an average of 9 - 9.25 per cent during the course of this week. The prices of government securities are likely to remain steady and volumes may not rise.

The revised price list of ten government securities announced by the Reserve Bank of India (RBI) yesterday could be seen as a precursor to the YTM curve, due to be announced by March-end.

Going by the price list of securities with maturities ranging from 2000 to 2013, the RBI is likely to come out with a YTM of 12.25-30 per cent for 10-year paper this year, which is lower than 13 per cent last year. The central bank has fixed an yield of 11.75 per cent for paper maturing in 2000, 11.87 per cent for 2001 and 11.94 per cent for 2002 and 12.3 per cent for 2013 paper. Most of the securities on the list carry a low coupon of 5.5-6.5 per cent, with the exception of 12.69 per cent 2002, 13.05 per cent 2007 and 11.5 per cent 2010.

However, given a scenario of falling yields and rising security prices on Friday, a section of the market feels a YTM of 12.3 per cent is on the higher side. The surplus liquidity situation currently prevailing in the system provides an arbitrage opportunity between the securities and call market, on the one hand and call and forex markets, on the other. This appears to have weighed on RBI's mind while revising the price list. The RBI yields will, in effect, tighten liquidity to prevent further rupee slide and fix floors on yields of various maturities. Fresh positions on long dated securities will also be discouraged.

On Saturday, call ruled around 9 per cent and closed at between 8.90-9.0 per cent. Liquidity was easy with the RBI mopping up Rs 1,459 crore at the fixed rate nine per cent repos on Saturday. Inflows into the system on account of repo reversals amounted to Rs 702 crore. The STCI weighted average call rate was 8.93 per cent on a turnover of Rs 900 crore.

There are inflows amounting to over Rs 5,000 crore scheduled for next week - Rs 4,522 crore on account of the second leg of repos conducted last week and Rs 493.09 crore coupon payments on 14 per cent 2005 paper coming in on March 11. There are inflows due in the form of repayments on government borrowing programme for food. Sufficient liquidity in the systemmay offset expected heavy outflows in the coming fortnight on advance tax payments.

Gilt prices that rose on Friday on buying interest saw a fall of 40-50 paise across maturities on Saturday, as they realigned themselves to the yields implied by RBI's revised price list. Among the actively traded securities, 11 per cent 2002 was traded at Rs 97.15 towards closing, compared to Rs 97.95 in the morning. 12.69 per cent 2002 was dealt at Rs 100.30, against Rs 100.60 on Friday.