Funds situation comfortable

MONEY MARKETS

Money market liquidity would be comfortable this week with no major depletion likely in the banking system's funds surplus of Rs 12,000-14,000 crore. Total outflows this week will be about Rs 4,000 crore "" all going towards treasury bill auctions.

But analysts warn that there could be liquidity issue if international oil prices rise. This is because any crude climb-up will lead to importers covering their payment obligations to avoid coughing up higher premiums on the greenback later.

Meantime, the inflation rate is expected to ease afresh this week owing to the base effect of last year, said a dealer.

Easy call rates

The call money rate, at which interbank players lend and borrow funds for their daily market operations, is expected to be in very easy range owing to the good funds situation in the banking system.

However, participants said the Reserve Bank of India could announce the auction of additional market stabilisation bills to suck out excess funds. In that case, the rate might harden a bit.

Also, if the equity markets continue to be bearish, it could impact the call rate because foreign portfolio investors would then buy greenbacks for remittance purposes, and flood rupees into the banking system.

Two t-bill auctions

There are two sets of treasury bills "" 91-day and 364-day "" on auction this week. Both the papers would be issued for Rs 2,000 crore each.

The auctions would partially be used for the government borrowing programme (Rs 500 crore in the case of the 91-day bill auction and Rs 1,000 crore in the case of the 364-day bill auction), while the rest would be used towards the market stabilisation scheme (Rs 1,500 crore through the 91-day bill and Rs 1,000 crore through the 364-day bill).

The cut-off yields at the auctions are expected to be market-related.

Recap: The call rate ruled extremely soft last week following ample liquidity in the banking system. Treasury bills were in focus as foreign institutional investors parked their funds in them considering it as the safest option around for now.

Meanwhile, average reverse repo bids last week were in the range of Rs 12,000-14,000 crore. Inflation for the week ended January 1 dipped under 6 per cent to 5.78 per cent.