Near-term liquidity not a worry

OUTLOOK/Money markets

The liquidity scenario is comfortable this week with over Rs 1,00,000 crore outstanding under the Reserve Bank of India's (RBI) seven-day repo.

The situation is expected to tighten in the medium term.

While the repo money is highly liquid, dealers feel funds under the market stabilisation scheme are parked mostly in short-term instruments such as treasury bills and one-year bonds which will accrue to the system only gradually.

Inflows from foreign institutional investors have been drying up. While some are of the view that investors are in a wait-and-watch mode with no firm policy signals coming from the Centre, others aver foreign investors could relook at Indian investments as interest rates have firmed up around the globe.

In the US bond yields have gone up factoring in the bearish sentiment.

Last week dealers panicked because the rise in the inflation rate to 5.5 per cent did not include the impact of the oil price hike. They feel that in the coming weeks the inflation may shoot up beyond six per cent.

There are outflows of Rs 4,000 crore this week towards the treasury bill auction, which will form a part of the government's borrowing programme and market stabilisation scheme.

Around Rs 50,000 crore locked under the seven-day repo window will return to the banking system in tranches once they mature. There will also be inflows to the tune of Rs 560 crore from the system on account of coupon redemptions and maturity of government securities.

Call rates to continue in comfortable zone

Call rates are likely to remain comfortable this week as market players prefer to remain liquid by selling their investments in gilts on the back of the uncertain interest rate outlook.

The rates could come under pressure towards the end of this week owing to reporting Friday considerations.

Last week call rates remained comfortable in the range of 4.25-4.3 per cent and weighted average rates remained below 3.5 per cent during the week.

Market-related T-bill cut-offs on the cards

There are four treasury bill auctions slated this week "" two 91-day bills and two 364-day bills. The auction of one set of 91-day bills and 364-day bills will be a part of the government's borrowing programme. Another set will be auctioned under the market stabilisation scheme.

The government's borrowing programme is for a total notified amount of Rs 2,000 crore this week, while another Rs 2,000 crore will be for outflows towards the market stabilisation scheme.

Market participants are of the view that the cut-off rates on these papers will be in line with market rates.

With the rise in yields in long-term bonds, short-term yields have also started going up.

Recently the yield on the 91-day bill had gone up to 4.5 per cent compared with 4.26 per cent three months back.