Funds situation comfortable

MONEY MARKETS

Liquidity is expected to be comfortable in the banking system this week.

Even though the money market is sceptical about foreign exchange inflows continuing at the pace that it has, government expenditure through salary payment will infuse rupee funds into the banking system this week.

The government is currently maintaining a credit balance of Rs 20,000-30,000 crore with the Reserve Bank of India (RBI).

Oil prices are expected to moderate with the coldest part of winter behind us, dealers said.

There will be an outflow of Rs 4,000 crore this week through the auction of treasury bills, while another scheduled government security auction would suck out Rs 5,000 crore from the system.

The market sentiment may change if the Federal Reserve announces a 25 basis points (one basis point is one hundredth of a percentage point) hike in the federal funds rate during the Federal Reserve Open market committee meeting at the beginning of this week.

Easy run in call rates

The call money rate, at which banks borrow and lend cash for their daily funds management is likely to rule easy this week, but there would be slight pressure towards the end of the reporting week.

Demand for funds will be high following the auction of government securities and treasury bills, which would result in an outflow of Rs 9,000 crore.

However, the outflow of Rs 4,000 crore through treasury bill auction will be compensated by an equivalent inflow from the maturity of another set of treasury bills.

Twin t-bill auctions

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

While Rs 1,500 crore out of this will be towards the government borrowing programme, Rs 2,500 crore would be for the market stabilisation scheme. The yields at the auction are expected to be market related.

However, the cut-off rates could be lower than at the last auction if the government securities auction is held before the treasury bill auction.

This is because post-auction, the market is expected to see a rise in the prices of gilts and a consequent fall in yields across maturities.

Recap: The call money rate ruled easy throughout last week with reverse repo bids averaging Rs 14,000-16,000 crore daily. Reverse repo bids are conducted by the RBI to suck out excess liquidity from the banking system.