The advance tax payments may suck out another Rs 25,000-30,000 crore from the system. Since this week is the reporting fortnight, banks will pay CRR on the deposit mobilised over a fortnight, which stands higher at 8.25 per cent.
The cash reserve ratio is the portion of the total deposits garnered by banks over a fortnight and deposited with the RBI as a statutory obligation.
Call rates: Trending upward
The repo rate hike, signalling tight money and outflows, will result in tight liquidity. Therefore, the call rate at which the banks lend and borrow funds from each other in the interbank market is expected to rule in the range of 8-8.5 per cent.
With the mutual funds who lend in the collateralised borrowing and lending obligation (CBLO) fearing redemption, the CBLO rates are also expected to firm up.
Treasury bills: Caution ahead
The Reserve Bank of India will auction treasury bills for government borrowing programme and not under the market stabilisation scheme (MSS).
Given the apprehension of tight liquidity, the cut-off yield for the auction will be higher by 5-10 basis points33 compared to the earlier auctions.
G-sec: Rangebound yields
Even after the repo rate hike, the market is apprehending another CRR hike by the RBI anytime in the next two to three weeks.
Repo is the rate at which the RBI lends money to banks, ultimately pushing up the other rates. CRR is the cash reserve ratio, which is a portion of the deposits mobilised over a fortnight and kept with the central bank.
The interest rates are already very high due to the repo rate hike. There may be an outflow towards advance taxes this week.
Rupee: Bearishness expectations
Although the RBI provided a direct facility to the oil companies for swapping dollars, non oil importers continue to flock the market for dollar purchases at every dip in the rupee dollar exchange rate.
Since the outlook on the rupee is bearish, there will be pressure from NDF arbitrageurs to buy dollars in the Indian market and sell them overseas.
These sales and purchases are notional and will be settled only in net positions at the non deliverable forward (NDF) market. This is a derivative market based on rupee dollar exchange rate and operational in the South East Asian markets.
Globally, the dollar has been recovering against most currencies due to good economic data. This will put pressure on the rupee.
On the other hand, market dealers do not expect any foreign exchange inflows from the institutional investors who are waiting for further correction in the equity market.
The only support for rupee is the dollar selling by the RBI to prevent rupee to breach 43.00. Exporters will also sell dollars at least for the near term of one to three months if the rupee depreciates.
The forward premium to be paid for booking dollars will remain firm since outflows towards the advance taxes for the first quarter are likely to keep the liquidity tight. The cost of rupee funds has already gone up following a repo rate hike by the RBI last week.
In this backdrop, the spot rupee is expected to rule in a wide range of 42.75-43.20 to a dollar.
