Call rates decline, but market on tenterhooks

Call rates softened to 6.13 per cent, the lowest in two months, as liquidity in the market improved owing to a sharp increase in foreign exchange inflows.

While portfolio investors were major contributors to liquidity, foreign exchange inflows from companies raising money through external commercial borrowings and depository receipts also played a role. Besides, there were inflows from smaller companies which raised funds at the alternative investment market (AIM) in London.

Though call rates have nose-dived from the highs of 11-12 per cent a few weeks back, market players feel the sudden burst in foreign exchange inflows is an "occasional phenomenon" and will not have a long-term impact. Call rates have fallen from the highs of 11-12 per cent a few weeks back.

Hitendra Dave, co-head - global Markets, HSBC, says that the liquidity position would not remain as easy after the Rs 9,000 crore outflow towards the government security auction is over. This is because inflation remains a cause of worry.

What has also kept the market on tenterhooks are the possible measures to be taken by the Reserve Bank of India to tackle the inflation spiral and to suck out excess liquidity due to the spurt in foreign exchange inflows.

The market expects the RBI to increase the notified amount for the bills under the market stabilisation scheme or even opt for a hike in CRR.