Funds ample, focus on inflation

OUTLOOK: Money markets

According to dealers, while credit offtake is gradually increasing, banks are reluctant to go for investments fearing a depreciation in market value.

Inflation rate remains a concern since uncertainty on the oil prices front continues. For participants, a reason for relief is that the pressure on interest rates due to the recovery in the global economy seems to be easing off. But the pressure from rising inflation is offsetting this.

Dealers said bond yields across the globe have fallen and should decline locally too. But this hasn't happened due to the liquidity overhang and the stickiness in the local bond market.

Meantime, there will be an outflow of Rs 4,000 crore this week, while inflows hover at Rs 859 crore this week.

Easy ride for call rates

The interbank call money rate "" at which banks lend and borrow cash for their daily fund management "" is expected to rule soft given the surplus liquidity in the banking system.

Liquidity has also been increasing due to government expenditure, apart from banks' unwillingness to invest.

The consistent profit booking by overseas funds and investors, however, is playing in the back of participants' minds who feel a continuation of this trend could have a negative impact on liquidity.

Auction time for treasury bills

There are treasury bill auctions worth Rs 4,000 crore scheduled for this week. Both 91-day and 364-day bills would be issued for a total notified amount of Rs 2,000 crore each.

These would form a part of the government borrowing programme as well as the market stabilisation scheme.

The cut-off yields at these auctions are expected to rule lower as a result of brisk trading seen lately. Most of the public sector banks are expected to continue showing interest in the bills as they are wary of the outlook on the long-term interest rates.

Recap: Call rates ruled easy in the range of 4.70/80 per cent with reverse repo bids hovering at Rs 31,000 crore. The cut-off yield for the 91-day bill was set at 5.14 per cent as against 5.56 per cent seen at the auction preceding last week's.