Money market dealers are expecting an additional Rs 5,000 crore Market Stabilisation Scheme (MSS) auction notification from the Reserve Bank of India on Friday.
MUMBAI: Money market dealers are expecting an additional Rs 5,000 crore Market Stabilisation Scheme (MSS) auction notification from the Reserve Bank of India on Friday, as liquidity shows signs of easing following government spending.
The RBI is scheduled to sell Rs 10,000 crore of government bonds through an auction on Friday.
Overnight call rates dipped to around 2.75% on Wednesday from about 4.50-5.00% on Tuesday, sharply lower than the Reserve Bank of India’s repo rate, the de facto benchmark for call rates.
Also, banks were forced to lend in the call money market with the RBI keeping a low ceiling of Rs 3,000 crore on reverse repo lending by banks.
Some sections fear that yet another cash reserve ratio hike lurks.
But P Mukherjee, treasurer, UTI Bank, said right now an MSS auction should be enough to suck out liquidity.
“But I can’t second-guess the RBI on CRR,” he said, in obvious reference to the propensity of the central bank to deliver surprises.
On Tuesday, finance minister P Chidambaram had warned that inflation still remains at elevated levels and will be brought down.
Analysts from Standard Chartered Bank, Citigroup, Lehman Brothers, JP Morgan and Edelweiss Capital have already gone on record after the April 24 monetary policy pronouncements saying a CRR hike is due.
The liquidity situation is also being keenly watched in the non-deliverable forward dollar/rupee market, based out of Singapore, is keenly watched.
Interest has been two-way as importers have bought forward dollars expecting the liquidity situation to tighten next week, while exporters have sold forward dollars to hedge their contracts.
“Expectations are that an MSS auction will be announced besides the Rs 10,000 crore auction already scheduled,” said Vikas Agarwal, fixed income and forex strategist, JP Morgan.
Dealers expect the call rate to jump beyond 8% next week if the auction is announced as expected for Friday.
“One-year forward premiums ended at 185 paise (4.52%) today I expect it to be in the range of 170-200 paise (4.15-4.88%) by the end of the month,” said Agam Gupta, head, trading South Asia, Standard Chartered Bank.
Corporate interest has increased and banks have stayed away from the forward market lately because of the uncertainty on the liquidity and rupee fronts
“Customer interest is clearly there and banks are not taking any positions,” said a dealer with a US bank.
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