Rates likely to stay in 6.1%-6.3% range this week

By Ananth Narayan, Managing director, Head Rates, Fx & Credit, South Asia

In money market, in line with RBI’s stated preference, it appears that banks will need to continue borrowing funds from RBI’s repo window in the medium term.

The system is currently short of liquidity by around Rs 40,000 crore. Government spending and perhaps RBI’s eventual mopping up of the dollar inflows in the forex market might provide some liquidity relief.

However, auction and excise outflows along with the seasonal increase in currency in circulation during the run-up to the festival season should ensure that the system deficit continues for a while now. Expect the overnight rate to be in 6.1%-6.3% range for this week.