The inter-bank call money rates should be in the 8.50-9 00 per cent range during the week on the back of high demand during the first week of the reporting fortnight. This is despite the funds inflows expected from the cut in the cash reserve ratio (CRR).
A dealer said, "Though the CRR cut effective from May 19 releases Rs 4,500 crore into the banking system, demand will also be on the higher side and hence call rates will continue around 8.50-9.00 per cent range."
Call rates were in the range of 8.40-9.00 per cent on Saturday. It opened around 8.80-9.00 per cent, but came down marginally as CRR cut released extra liquidity in the market.
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A primary dealer said, "Today being the first day of the new reporting fortnight demand was a bit high, but there was enough liquidity in the system to meet the demand."
Except the CRR cut, redemption and coupon payments of government security and the treasury bills will also add some comfort to overnight market. There will be inflows to the tune of Rs 5,363 crore during the week from these sources. However, there will also be an outflow of Rs 250 crore on account of an auction of 91-day treasury bill.
However, dealers expect on the back of the ways and means advances (WMA) figure that the liquidity comfort in the market will be hampered by the another auction during the week.
A dealer with a new private sector bank said, "We expect at least Rs 6,000 crore of auction during the fortnight and a part of it will be completed during the week. Hence, though the redemption and the lower CRR will provide some comfort to the market, the extra liquidity will be mopped out by the apex bank itself."
The central bank, in April showed its aggression to complete the government borrowing programme. The apex bank, though restricted itself from conducting any auction during the first two weeks of May, re-issued the 10.47 per cent 2015 paper on May 17 to raise Rs 4,000 crore. As the WMA figure (more than Rs 8,000 crore) is very close to the government's borrowing limit, dealers in the money market expect the Reserve Bank of India (RBI) to conduct further auctions during the fortnight.
However, dealers do not expect call rates to cross nine per cent as the RBI has shown its intention of keeping the market liquid by pumping money through reverse repo auction.
The chief dealer of a private sector bank said, "We feel if there is no liquidity shortage, the apex bank will help us via reverse repo auction, and as the reverse repo rate is currently at 8.75 per cent we do not expect overnight rates to breach nine per cent."