'Call rates likely to stay high around 8.25%'

The Reserve Bank of India is expected to continue monetary tightening measures as inflation and inflationary expectations remain high. The bond yields in the coming week are expected to remain under pressure with the medium-term trading range of 8.50-8.90%, mainly because of tight monetary policy and loose fiscal policy.

Bond traders and investors are worried by the prevailing inflationary outlook of the economy and the pressure on government finances considering higher crude price which can hit the markets by way of extra government borrowings. The bond market believes the current bonds in auction will become illiquid soon with new bonds coming up for auction and is, therefore, bidding defensively.

This approach will continue until the RBI starts issuing new bonds that will be perceived as more liquid than the older bonds. Call rates are expected to remain at the higher end of corridor at 8.25% levels sighting tight systemic liquidity. There are no redemptions from government lined up for rest of the month even as we have G-Sec auction of Rs 15,000 crore is scheduled for the coming week.

Yadnesh Chavan
Fund Manager – Fixed Income
Mirae Asset Global (India)