Rate hikes by banks may impact trend

OUTLOOK/ Money markets

The inflation rate is expected to be moderate this week owing to stabler oil prices.

Bankers said even if the oil prices were to flare up afresh, there is enough money supply to rein in inflation.

They said the hike in capital adequacy requirement for home loans and consumer credit will suck out some liquidity.

There won't be any outflows this week, while inflows will tot up to Rs 1,713 crore.

An additional Rs 1,500 crore will come into the banking system following the maturity of a 91-day treasury bill issued as part of the market stabilisation scheme.

There is no deceleration expected in forex inflows. And now that the Diwali festival season is over, cash would start flowing back into banks.

Bankers said one factor that could impact sentiment is the decision of banks to hike both the lending and deposit rates. They were also worried about the centrl governmen'st auction programme.

Call rates may dip

Interbank call money are expected to ease this week.

The softening will be aided by forex inflows, cash balances with banks and government spending. Call rates are likely to move in a wide range of 5.5-6.10 per cent. The repo auction will remain an important source of funds for banks.

No treasury bill auctions this week

There are no treasury bill auctions scheduled for this week, both as part of the government borrowing programme and the market stabilisation scheme. The government had cancelled the auction of the 91-day treasury bill slated for this week, said dealers.

Dealers said high interest rates ranging between 4.54-59 per cent at the 91-day treasury bill auction had jerked up the short-end of the yield curve.

This is leading to higher commercial paper rates, which are usually floated by corporates to raise short-term funds.

Recap: Acute liquidity shortage led to the drawing of funds worth Rs 7,000-14,000 crore from the Reserve Bank of India (RBI). Call rates shot up to 6.25-6.50 per cent. The RBI purchased dollars in the foreign exchange market to provide rupee liquidity to banks. The cost of funding for private and foreign banks are seen up.