MSS funds may return to market

LIQUIDITY
Easiness to persist

Easy liquidity is expected to continue this week. The plausible sources of funds are the intervention of the Reserve Bank of India (RBI) in the foreign exchange market, unwinding of funds mopped through the market stabilisation scheme (MSS) earlier and spending by state governments.

While these factors are preventing a sharp appreciation of the rupee, in the process the dollar buying by the RBI is injecting more cash into the market.

However, this week, it might not happen in large scale as the local currency is already under pressure to depreciate following a dollar appreciation binge.

More importantly, the market is awaiting liquidity enhancement measures from the RBI, following the assurance of the finance minister to bank chiefs last week.

CALL RATES
Set for decline

Call rates are likely to come down this week with liquidity set for further improvement. According to some bankers, in order to show an increase in deposits before the year-end, the market may witness major lending by banks in the call market.

T-BILLS
Cut-offs to dip

There will be two treasury bills for auction this week "� 91-day t-bill for Rs 500 crore and 364-day t-bill for Rs 1,000 crore. The cut-off yield is expected to come off from the current level as there will be good demand because of the year-end valuation concerns.

The secondary market is also likely to witness strong demand for treasury bills from banks across the board.

GILT
Yields seen falling

Liquidity is set to improve and so is the yield on government securities. Besides RBI's foreign exchange intervention by the RBI, there might be central and state government spending as they are maintaining a cash balance of around Rs 60,000-70,000 crore with the RBI.

CORPORATE BONDS
Quiet week ahead

The corporate bond market is expected to remain quiet and rangebound. The market does not expect any corporate borrowing, either from public sector or private sector, to happen before the fiscal-end.

RUPEE
Depreciation likely

Most of the data, including those on consumer durables and monthly home sales, from the United States has been favourable for the dollar.

Since the dollar gained against all major currencies, the rupee is under strain to depreciate this week. This has already been factored in by the speculative non-deliverable forwards market (NDF).

Therefore, players are buying dollars in the Indian market and selling it in the NDF market at a premium for forward months which is at 10-12 paise spread over the forward premiums paid here.

Further, intervention of the RBI to infuse liquidity by buying dollars is also pushing the exchange rate down.