Surplus liquidity situation to continue

MONEY MARKETS

With US non-farm payroll data much below expectations, money market participants are confident that foreign exchange inflows would continue to be robust this week.

Add to this government expenditure and inflows from coupon payments, and the picture of surplus liquidity is very clear. This week will see inflows of around Rs 3,057 crore through coupon payments on gilts and the maturing of some treasury bills.

Net outflows this week would be around Rs 5,000 crore instead of Rs 7,000 crore. This is because an outflow of Rs 2,000 crore via the treasury bill auction will be offset by the maturing of another set of treasury bills for a similar amount.

Meanwhile, money market participants are bullish on their outlook for inflation. They expect it to moderate further owing to last year's lower-base effect.

They feel that with the winter coming to an end, oil prices are unlikely to flare up further. In short, this week starts with a lot of inbuilt positives "" low inflation, moderation in oil prices and less-than-expected non-farm payroll data.

Wind-up of govt borrowings

There is a 91-day treasury bill auction this week. While Rs 1,500 crore will be auctioned as part of the market stabilisation scheme, Rs 500 crore covers the government borrowing programme.

The government borrowing plan for the fiscal ends this week, which could lead to brisk trading in treasury bills. Banks would be relaxed too and could invest more.

Recap: The inflation rate for the week ended January 22 stood at 5.37 per cent compared with 5.42 per cent for the week before.

Liquidity was surplus as indicated by the reverse repo bids, which averaged around Rs 20,000-24,000 crore. The call rate ruled below the reverse repo rate last week.