Call rates are unlikely to come down in near future

KV Ramesh, General Manager, Integrated treasury Lakshmi Vilas Bank

Liquidity (Call range 7.50%-7.75%)

Call rates are expected to trade between 7.50% and 7.75% in the wake of tight liquidity conditions after companies paid advance tax on June 15. Ever since the June 16th hike by RBI, liquidity has became tight and banks are daily borrowing in the range of Rs 75,000-1,00,000 crore through LAF.

Call rates are unlikely to come down in the near future. Liquidity has been extremely tight and the same situation would continue in the coming weeks as the market is expecting a further 25 bps hike in the next policy by RBI in July.

Govt Bonds (Range 8.15-8.32% — 10 year bench mark 7.80 GoI 2020)

The government raised diesel prices about 9% on Friday after months of delay. The implications of the hike on inflation would be unavoidable and may run into double digits again as the hike translates into 35-55 basis points hike in headline inflation, which is already at 9% levels.

The market had already factored in up to Rs 4 hike in diesel price and hence the current hike of Rs 3 may not result in shooting up of bond yields. However, the world oil prices fell till Friday after major consuming nations tapped strategic reserves. Analysts predict Brent oil to trade between $100 and $120 per barrel for the July-September quarter. Crude oil and euro have become significant leaders for the global interest rates over a couple of weeks.