Mint Road keeps off

OUTLOOK: Money Markets

The current tightness in liquidity is expected to continue till the time the government releases the funds back to the banking system.

Although there are ample flows on account of the foreign portfolio investments, there is little intervention by the Reserve Bank of India (RBI) to rein in the rupee "" which means, extra rupee liquidity is not being infused into the system.

The daily funds scenario seems comfortable but players are sceptical about long-term surplus liquidity. "Credit demand is growing fast and therefore banks are using larger chunks of funds for lending than investing," said an analyst.

Inflows this week will be to the tune of Rs 765.53 crore, while outflows will Rs 3,000 crore. A little over Rs 1,000 crore is expected to flow out through residual advance tax.

Call rates seen steady

The interbank call rates at which banks borrow and lend for their daily fund requirements, will be hovering the range of 4.6 to 5 per cent.

While tightening liquidity would impact call rates, additional pressure will come through reserve requirements.

But if at all there is any adverse funds situation, the liquidity adjustment facility of the RBI will come into play which will ensure that call rates remain within the 4.75-6 per cent corridor of reverse repo and repo rates.

T-bill auctions slated

There are two set of treasury bills to be auctioned this week amounting to Rs 4,000 crore. Of this, Rs 2,000 crore is for a 91-day treasury bill and Rs 1,000 crore is for a 364-day bill.

While the 91-day bill includes borrowings under the market stabilisation scheme (MSS), the RBI has postponed the MSS under the 364 day bill category.

MSS forms a part of the sterlisation tool used by the RBI. The government had fixed a target of mopping up Rs 80,000 crore through MSS. The RBI is also expected to announce the MSS calendar for this week.

Recap: Liquidity was tight last week with reverse repo subscription bids reducing to Rs 1,500 crore from a high of Rs 8,000-9,000 crore on account of advance tax flows.

Call rates continued to be in the range of 4.6-5 per cent. Treasury bills were the flavour of the week for trading due to their short tenures and high yields.