Call money rates seen in 7.00-7.40% range

Ashish Ghiya, Managing Director, Derivium Tradition (India)

Liquidity again plays a key determinant in deciding short-term interest rate trends. Inter-bank liquidity (as measured by the amounts banks borrow from RBI’s repo window on an overnight basis) again got into the higher end of the deficit zone, at an average of Rs 75,000 crore.

However, this time, the borrowing rush is well distributed among the government, banks, PSUs, HFCs & NBFCs. The benchmark three-month bank CDs were traded up to 9.80% and yet look nervous. Further, impending diesel and LPG price hike will keep inflationary expectations jittery and markets discounting a further 25 bps hike in June. We expect money markets to maintain the current momentum for further two weeks, with markets discounting a severe liquidity deficit post June advance tax outflows.

For this week, we expect inter-bank liquidity shortage to be in the range of Rs 45,000-60,000 crore. GoI security and T Bill auction outflows would get matched against GoI security & T Bills coupons and redemption inflows. Further, inflows would be led by lower CRR coverage and routine government spending on monthly salaries. Expected ranges for the week:

CBLO will range within 6.00-6.50% while call money will trade between 7.00% and 7.40%. Threemonth CDs are likely to trade within the 9.70-9.95% range and one-year CDs will range between 10.00% and 10.15%. GoI securities are trading nervously – the 10-year benchmark is testing the historical resistance of 8.50% levels. GoI securities are likely to continue their current curve flatness, moving in a dichotomous trend against OIS markets.