Call rates showed a mixed trend this week with their remaining more or less slight changes in the first half of the week and a sharp increase in the later half of the week. In the first half of the week, there were coupon repayments and redemptions, because of which there was ample liquidity in the system.  But in the later half of the week, Government announced its fresh borrowings through the issue of its 4 year paper.   Also there was a concern among the banks to cover their reserve positions.   This caused the call rates to firm up in the later half of the week.  On Friday, due to a volatility in the forex market, the RBI announced some measures to curb the volatility in the forex market, viz, a 1% increase in bank rate, a 0.5% increase in CRR and a reduction of 50% in the refinance limits of the banks.  Because of these measures, we expect the call rates to rule firm in the coming week.

Friday, 21st July

Call rates closed around 8.25-8.50% amid low liquidity and heavy demand for funds. Extremely tight conditions prevailed in the call money market due to heavy demand for funds from the banks to cover their reserve positions. Call rates opened sharply higher at 8.75-9% and rose to an intra-day high of 9.75-10% before closing at that level. The RBI was into action at its reverse repo auction window. The cut-off rate for reverse repo auction was fixed at 10% by the RBI, which caused the call rates to rise to 10% level. Later when the demand cooled down, the rates fell back to 9% level. The market for G-secs continued to remain under selling pressure after the rupee dipped to all time lows. Later in the day, after the close of the markets, the RBI announced a 1% increase in the bank rate, a 0.50% increase in the CRR and a reduction of 50% in the refinance limits of the banks to curb the volatility in the forex market. It also cancelled the proposed bond auction scheduled for next week. These measures will tighten the liquidity in the system and we expect call rates to rule high in the coming week.

Thursday, 20th July

Call rates closed sharply higher at 7.5 - 8.25% as compared to their previous close amid tight liquidity conditions in the call money market. Call rates firmed up after the RBI mopped up Rs. 2500 crores in Thursday's repo auction at a cutoff rate of 7%. This is seen as a move by RBI to tighten the liquidity conditions in the market. In the forex market, the rupee weakened to touch a low of 44.91 to a dollar. An increase in the call rates makes it difficult for the operators to take positions in the forex market. So the RBI has tightened the liquidity in the call money market so that the volatility in the forex market can be curbed. Some banks have postponed their borrowings as they were expecting the rates to ease down next week. But after the mop up by the RBI, the liquidity is expected to remain tight and call rates are expected to rule firm.

Wednesday, 19th July

Call rates closed slightly lower at 7-7.10% slightly above the Central Bank's refinance rate. The call rates opened higher due to fear of liquidity concerns after the Government announced a fresh Rs 4000 cores bond auction on July 21st. The call rates touched an intra-day high of 7.60% before closing at this level. There are huge inflows expected in the next week on account of coupon payments and redemptions to the tune of Rs 11000 crores and the liquidity conditions are expected to remain good. The operators are expecting bond auctions next week to offset these inflows. The prices in the G-secs market fell by as much as 10-20 paise on fears of rise in short-term rates following the volatility in the forex market.

Tuesday, 18th July

Call rates closed slightly higher at around 7.15-7.25% against their previous close. The call rates opened sharply higher at 7.40-7.50% amid speculations of increasing rates causing lenders to quote high in the early trades. But they eased down as the operators realized that there was enough liquidity in the system to support the existing demand for funds. The market is expecting a redemption of Rs. 9000 crores of securities and therefore the liquidity conditions are expected to remain low for the entire week. The RBI didn't accept any bids at its reverse repo auction window. The G-secs market was under some selling pressure due to weakening rupee against the dollar losing around 3-4 paise.

Monday, 17th July

The call money market displayed a comfortable trend due to adequate liquidity in the market to meet the demand for funds. Call rates closed at around 7-7.10%.  Call rates opened around 7-7.15% and moved in a range of 7-7.20% before settling at that level. Most of the transactions were struck at 7.10% and some stray deals were reported at 7.20%. There was a demand for funds by banks to cover their reserve position ahead of tomorrow's Rs. 2500 crores bond auction but there was enough money in the system due to coupon payments and redemption proceeds, which ensured enough liquidity in the system. The market for G-secs didn't see much of an action as operators awaited Tuesday's auction and the yields on that auction.

Rajneesh Mittal