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| This could trigger intervention by the central bank through open market operation/s in an effort to neutralise the liquidity overhang in the system.
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| Average repo inflows last week were well in excess of Rs 26,000 crore, on the back of two market holidays. On Friday, over Rs 19,800 crore went into the three-day repo.
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| Good fund flows from the forex and stock markets will further add to the flows into the money market. Despite the abundant liquidity, the market will be directionless.
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| Nationalised banks are seen to be on the buying side, but their aggressiveness has waned. There is practically nothing driving the market today barring expectations of rate cut/s in the Monetary & Credit Policy scheduled for this month end.
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| The players perceive the need for a repo rate cut because call rates are in an artificial range of 4.4-4.5 per cent.
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| While there is no scheduled auction of government borrowing programme until October 16-22, state loan borrowings to the extent of Rs 6,400 crore has been scheduled for October 13.
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| However, this will have no bearing on the liquidity, which will continue to average between Rs 15,000-Rs 20,000 crore.
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| Even though government security prices witnessed sharp surge last week, yields could edge south this week owing to the slightly higher inflation number.
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| Banks are expected to consolidate their position this week, and the long-end yield curve will be trapped in the five basis point range.
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Call rates artificially pegged at 4.4-4.5%
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| Overnight call money rates will continue to remain easy on the back of excess liquidity and no outflow of funds from the system.
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| And due to sizeable funds flowing back through the redeemed Resurgent India Bond, call rates will rule in the band of 4.4-4.5 per cent.
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| Expectations of a repo cut in the credit policy will help drive down call rates closer to reality. Currently call rates are artificially pegged in keeping with the repo rate of 4.5 per cent.
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Net inflows of Rs 1,788 crore on back of interest payment
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| The money market will see net inflows of Rs 1,788.1 crore this week on the back of interest coupon payments on central and state-level government borrowings. With the market facing a liquidity overhang, high inflows will further put pressure on call rates to fall.
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| Monday will also mark an inflow of over Rs 1,000 crore on the back of 14-day repo, which might see higher subscription following the excess liquidity in the system.
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Gross inflows during the week are higher at Rs 2,288.1 crore against last week
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