WEEKLY MONEY & CURRENCIES
Liquidity: Likely to tighten
The market may face tight liquidity following the first tranche of the cash reserve ratio (CRR) hike by the Reserve Bank of India (RBI) coming into effect.
RBI hiked CRR by 50 basis points on April 17 in two tranches ? 25 basis points each on April 26 and May 12. CRR is the portion of deposits mobilised by banks that is kept with RBI as a statutory requirement every fortnight on Friday.
Even if liquidity is surplus, market players will be cautious as the central bank is trying its best to tighten funds in the system for fighting inflation.
The capital inflow has taken a backseat for the time being.In this backdrop, the system will witness an inflow of around Rs 14,253 crore as against an outflow of Rs 12,250 crore. The outflow includes the first tranche of CRR hike.
Treasury bills: Auctions afoot
RBI will auction the 91- and 182-day treasury bills for a notified amount of Rs 3,000 crore and Rs 1,000 crore respectively only for government borrowing.
According to dealers, RBI will not float T-bills to suck out liquidity under the Market Stablisation Scheme (MSS) as the CRR hike of 50 basis points is likely to absorb excess liquidity in two tranches.
Rupee: In a range
The spot rupee is likely to rule range-bound till the outcome of the monetary policy next week.
A rate hike will fuel the expectation of a bullish rupee since the capital inflow may go up following a widening interest rate differential between rates in India and overseas. The spot rupee is expected to rule in a range of 40.10-40.50 to a dollar.
If there are changes in interest rates, the rupee-dollar exchange rate will look forward to cues from global markets and economic data expected from the UK and the US.
Besides the Federal Open Market Committee of the US will meet on April 30 and the Bank of Japan will publishes its economic outlook report on the same day.
Of late, the rupee has been moving in tandem with the dollar and not the rest of currencies unlike last year.
This year, widening trade deficit and a lack of capital inflow have resulted in depreciation of the rupee against the dollar even as other currencies continue to appreciate against the US currency.
The spot rupee is expected to rule in a range of 40.10-40.50 to a dollar.
G-sec: Cash crunch
The government securities (G-sec) market will wait for cues from RBIs annual policy review. While the market has factored in a 25 basis points hike in policy rates, the factor that may mar the market sentiment is liquidity.
Trading will hence remain lacklustre. In this backdrop, the yield on the ten-year benchmark may rule in the range of 8.15-8.25 per cent.
