MONEY MARKET
Interest rates in the inter-bank overnight money market are expected to rule in the region of five per cent and below this week. The overnight interest rates are likely to decline with reporting Friday around the corner.
More importantly, there is sufficient liquidity in the banking system as has been reflected at the reponse at the repos auction. At the repos auction, the Reserve Bank of India (RBI) mopped up over Rs 4,800 crore.
Last week, there was a temporary increase in the call money rates inspite of the existence of liquidity. State Bank of India (SBI) stayed away because its officers were on strike protesting against suspension of three officers in connection with the CRB Capital Markets Ltd imbroglio. Inspite of the absence of SBI there was no panic in the market.
"The absence of SBI from the maket only implied that the quantum of funds was reduced and interest rates went up. But there was sufficient funds available to meet the demands of all the borrowers", said a primary dealer.
This week the trend will be set by the new seven-year paper which is to be auctioned on Tuesday. There is no doubt about the fact that the issue should sail through on account of persistence of liquidity.
Money market dealers expect a cut-off in the range of 12.60 per cent to
12.70 per cent.
At present in the secondary market the 12.50 per cent 2004 is trading at a level of 12.60 per cent.
The activity in the securities market will pick up from Wednesday onwards once the new security opens for trading. If the call continues to rule easy then the prices could increase. It goes without saying that the activity will be concentrated around the new paper which should command a premium depending on the extent of oversubscription.
Last week in the secondary market, the yields on the 364-day treasury bills maturing in April-May next year were in the region of 8.80 per cent to nine per cent.
If the call rates decline to five per cent then the activity in the treasury bills will pick up.
This will also spur activity in the secondary market and the trading volumes will pick up consequently.
Last week the 12.14 per cent 2000 was trading at a premium of over 60 paise, the 12.69 per cent 2002 at a premium of over Re 1 and the 13.05 per cent 2007 was traded at Rs 101.50.
Last week, in a rare occurrence, there was a deal struck on the wholesale debt market segment of the National Stock Exchange in a 18-year central government paper.
The 11.50 per cent 2015 was traded for Rs 5 crore at a price of Rs 90.11, indicative of an yield of 12.92 per cent.
