MONEY MARKET
Inter-bank call money rates are expected to move in the range of 4.5 per cent to 5.5 per cent this week. The conditions of easy liquidity may persist with the injection of Rs 2,100 crore into the banking system on January 18 through a 0.5-percentage point cut in cash reserve ratio requirements.
Dealers feel volumes in securities may pick up this week. During the first half of last fortnight, trading was not particularly brisk.
This happened even in the face of low call money rates. However, trading looked up in the second half with the prices of many short-term securities rising.
The Reserve Bank of India (RBI) set a cut-off yield of 5 per cent at the repos auction on January 16. Dealers said this rate will serve as a temporary benchmark for the call money rates. As such, calls are likely to hover around 5 per cent for the better part of the week.
The fact that the liquidity conditions continued to be easy was reflected in the falling yields on the 91-day treasury bills. They were pegged at 8.14 per cent on Friday last, down from 8.19 per cent at the previous auction. That apart, the declining yields were accompanied by increased bank participation.
Banks also bid actively at the repos auction on January 16. A return of 5 per cent on three-day money was considered attractive.
This appeared to be true against the backdrop of low call rates, which had remained below 1 per cent during the week.
Meanwhile, the RBI has revised the calendar of repos auctions for January 1997.
The central bank had earlier declared that a three-day repos auction will be held on January 18, with payment on January 20 and repurchase on January 23.
In partial modification of this, it has now been decided that the repos auction to be held on January 18, 1997 will be for a period of four days with the payment to be made on January 20, 1997, as announced earlier.
The date of repurchase will, however, be January 24. These repos auctions are likely to soak a certain amount of liquidity from the system.
This, in turn, should help keep call rates stable. Further, outflows worth Rs 1,600 crore are on the cards on account of the state government loan slated for January 20. This, may also help mop up the excess liquidity from the system.
The last repos auction absorbed funds worth Rs 2,250 crore from the system. 42 bids worth Rs 2,860 crore were received from banks. Of this, 33 bids aggregating Rs 2,250 crore were accepted.
