CALL MONEY: Short-term rates may gradually inch up 15-20 bps

Call money rates would continue to hover around the reverse repo rate. Though with the start of the government borrowing programme from this month, the market will get auction outflow of around 10,000-12,000 crore every week.

This will affect the system liquidity only if government spending gets postponed and credit off-take picks up along with portfolio outflows. In such a situation, market liquidity can get skewed and may affect the short-term rates. Otherwise, these rates will be more guided by the RBI policy rates. RBI’s surprise hikes in March resulted in 15-20 basis points rise in short-term rates.

If RBI hikes rates again by at least 25 basis points, as we expect, then short-term rates could inch up in a similar fashion. Inflation is still above RBI’s tolerance level and is expected to be high since wage inflation has also started climbing up along with food inflation.

By Alok Singh, Head- Fixed Income and Structured Products, Fortis Mutual Fund.