Call rates likely to ease

Call rates closed the week at 6.90-7.00% against their last weekly close of 6.80-6.90%. Money market witnessed higher demand at the start of the week as the new reporting cycle commenced and banks covered in excess to secure the mandatory reserve targets. Routine demand was supplemented during the week by borrowings to provide for gilts auction worth Rs 9,000 crore slated at the end of the week. Hence, call rates stayed pressured on account of strained liquidity. Hence, call rates stayed pressurised on account of strained liquidity.

At the October policy review, RBI hiked the repo rate by 25 basis points to 7.25% while it kept the reverse repo rate unchanged at 6%. Following the hike in the repo rate, it is observed that banks increasingly prefer to borrow from the market at lower rates to borrowing from the RBI. Hence, the trend to receive no bids at the RBI repo auction continues.

Call rates are expected to slightly ease in the upcoming week as the borrowing recedes in the second half of the fortnight. However, hike in repo rate is likely to sustain pressure on rates.