Liquidity may come under pressure

OUTLOOK: Money markets

Inflation has dipped to 7.32 per cent while oil prices remain high at $ 51 per barrel. This will continue to remain a negative trigger for the market.

With credit offtake picking up pace, liquidity may come under pressure in the medium term. To that extent, the effect of excess liquidity on money supply and inflation would be curtailed. There would be no impact on funds in the short term, though.

Credit offtake showed signs of improvement in the week ended September 24. In fact, it has grown by over Rs 10,000 crore over a week.

The bullish outlook on the rupee is likely to attract good portfolio inflows. This would lead to increase in liquidity in the coming months.

Jobs data from the United States have become a significant trigger. Official figures showed that US employers hired 96,000 extra workers in September, far fewer than the 150,000 expected.

The dollar slumped dramatically after this news owing to concerns that the world's largest economy has not fully emerged from the "soft spot" experienced earlier in the summer.

The government borrowing programme slated for this week has also added to the bearish sentiment.

Bankers feel that with uncertainty abounding on account of inflation, oil prices and interest rates, participants are expecting a mellowing down of the government securities yield on the back of excess liquidity.

There will be an inflow of around Rs 3,143 crore towards coupon redemption and maturity of government papers this week.

On the other hand, outflows will hover at Rs 10,000 crore.

While there will be an outflow of Rs 4,000 crore towards borrowing through auction of treasury bills by the government, Rs 6,000 crore will be moving out of the system due to the government borrowing programme.

The auction cut-off will be crucial, said dealers, as it is expected to set the tone for this week.

Moderate call money rates forecast

Inter-bank call money rates is expected to remain moderate in the range of 4.40-50 per cent as outflows towards advance tax will be making their way back into the system.

Surplus liquidity in the system stands at Rs 15,000-Rs 18,000 crore as on date. This week might see some stiffness in the call money rates, usually borrowed and lent by banks.

This is because with the auctions and the market stabilisation bonds, there will be a total outflow of Rs 7,000 crore from the system. Last week, call rates remained tighter at 4.75-5 per cent as higher cash reserve ratio requirements and advance taxes drained some liquidity.

Market-related yields seen at T-bill auctions

There are two sets of auction of treasury bills this week. There will be a 91-day treasury bills auction "" Rs 500 crore for the government borrowing programme and Rs 1,500 crore towards the market stabilisation scheme. The second will be for a 364-day bill for Rs 1,000 crore each towards government borrowing and market stabilisation bonds.

The yields are expected to be market related. Last week, the 91-day paper was auctioned at a cut off yield of 4.99 per cent.

The yields will be market-bid but participants are of the view that the RBI has always have the option of rejecting the bids if it were to give a signal that the current rates are not comfortable.