Rates in the inter-bank call money market are expected to remain between 10 and 10.5 per cent this week.
On Saturday, the money market showed signs of easing as most of the transactions were conducted between 10.25 per cent and 10.5 per cent.
The easy money situation was sentiment-driven with the market awaiting a reduction in cash reserve ratio (CRR) requirements in the forthcoming credit policy.
Dealers were divided over the size of reduction that will be put through. Some were expecting a 1 per cent cut, while others were saying that even a 2 per cent cut cannot be ruled out.
During the past week, the dated securities market as well as the market of treasury bills saw a bull run.
Banks, mostly foreign ones, and then newly-set up private sector banks rushed to buy securities.
With expectations of a reduction in reserve ratio requirements, banks were eager to pick up securities, locking funds into high yielding securities. Increase in buying interest saw the prices of most securities perking up by 5-10 paise during the past few days.
Most of the banks continued to show interest in 2 and 3-year securities. The zero-coupon bonds maturing in 2000 were also traded.
The second tranche of the four-year zero coupon bond, which is coming up for subscription today, is unlikely to see full subscription.
The first tranche of the paper, which is already in existence in the secondary market, is trading at much lower prices. The RBI is offering a price of Rs 60.66, while the secondary market yield on the paper is standing at Rs 60.20 (as on Saturday, October 5).
Though there was a feeling that the secondary market price is likely to align itself in accordance with the price being offered at the sale on Monday, this did not happen.
Moreover, foreign banks already have enough of the paper and the institutions are not expected to pick up the paper in large amounts.
Some primary dealers (PDs) have said they are unlikely to bid on behalf of banks in the primary market auction of the zero-coupon four year paper.
The PDs are of the opinion that the banks should participate in the auctions directly.
However, banks are of the opinion that they will not participate directly in the auctions. Banks would prefer to pick up the paper at a later date in the secondary market.
This stalemate between banks and PDs is further likely to spike the paper's subscription amounts.
