Call rates inch up as RBI sucks out excess liquidity

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Call rates inch up as RBI sucks out excess liquidity

Call money rates inched up as the Reserve Bank of India (RBI) sucked out excess liquidity through term reverse repo auction held on Monday. In the 4-day term reverse repo auction RBI sucked out liquidity worth Rs 2,025 crore from the system compared with the notified amount of Rs 15,000 crore.

On Monday the weighted average call money rate was at 7.97% compared with Friday's 7.69%. "Due to sucking out of this liquidity, call rates rose today," said a senior official of a primary dealer.

With the intention to fight sticky inflation, RBI on Friday announced for the first time a term reverse repo auction. The move was announced just ahead of the bi-monthly monetary policy review scheduled Tuesday and was aimed at keeping liquidity in the deficit mode.

RBI had also said that the auction will have a greenshoe option to accept offers up to an additional amount of Rs 10,000 crore above the notified amount. Most banks did not participate as they felt there are other avenues at higher rates.

However, government bond yields did not react much due to liquidity drain. There was also thin trading volume in the bond market ahead of the monetary policy review. The yield on the 10-year bond ended at 8.66% compared with Friday's close of 8.65%.

However, there are concerns on the bond street that a below normal monsoon and El Nino may continue to keep the inflation sticky due to which one more rate hike during this fiscal cannot be ruled out.

"There are concerns of below normal monsoon and El Nino, but we need more clarity on this as and when it happens. In the next few days we shall have more clarity," said the head of treasury of a public sector bank.

Most experts are expecting RBI to maintain a status quo on key policy rates tomorrow. However, the market has also factored in that RBI's guidance may be hawkish as the central banks awaits more clarity from the government on fighting inflation. The repo rate currently stands at 8% while the reverse repo rate is at 7%.


Business Standard


Thanking you

Regards,

Rajesh Kumar Kathpalia ¤ SMC Global
17,Netaji Subhash Marg,Daryaganj,
New Delhi-110002 Mobile No 9891645052
Email Id: rajesh.ipo@smcindiaonline.com


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