Calls likely to hover over 3.25%-3.55%

The first phase of the CRR hike of 50 basis points (bps) has come into effect from the current fortnight (commencing February 31) and shall result in draining of excess liquidity from the system of around Rs 23,000 crore. The second-phase of the CRR hike of 25 bps shall be effective from the next fortnight (commencing February 27) and the expected higher GDP numbers for FY10 shall result in higher advance tax outflows in March.

It is expected that there shall be some liquidity tightness from mid-March after the advance tax flows and the full effect of the CRR hike shape in. This shall also be reflected in call rates and also the rates of money market instruments in March.

The LAF (liquidity adjustment facility) figure, which has been on an average at around Rs 90,000 crore, is likely to come down in the coming weeks. With hardening interest rate expectations, some of the investors are keeping more of liquid cash.

During the current fortnight, liquidity shall be adequate and we might see slight hardening in call rates/rates of money market instruments. Call rates are likely to hover between 3.25% and 3.55% during the current fortnight with a slight hardening bias.

(VP & Head Treasury, IDBI Gilts Limited)