IT, export remittances set to ease pressure on liquidity Call Rates May Fall In Coming Weeks, But FI
THE spell of tight liquidity in the money market may ease next week, with dealers expecting higher remittances from exporters and software firms. On Wednesday, the Reserve Bank of India (RBI) lent close to Rs 32,000 crore on Wednesday to banks which were strapped for cash since local mutual funds (MFs) had to cope up with redemption pressures. Treasury managers reckon that the tight conditions are likely to ease in the coming week. A senior treasury manager from a bond house said, “Once the reporting fortnight is over, the liquidity scenario could ease off by next week. Even though RBI might continue to infuse funds through the repo window, call rates could be seen returning to their normal band.” With inward remittances improving on account of payments received by software companies and exporters, more funds are entering the banking system, said a senior treasury official. However, there are factors such as pullout of funds by foreign institutional investors (FIIs) from the stock market and advance tax outflows in December, which are likely to maintain some amount of pressure on the liquidity front. Liquidity in the banking system has been strained after RBI hiked the cash reserve ratio by 50 basis points in its mid-term policy review in October. After the CRR hike, banks had almost stopped parking funds with the central bank through reverse repo. Prior to the credit policy announcement, banks were seen parking up to Rs 25,000-30,000 crore daily. The three main reasons for tightness in the money market were the hike in CRR, increase in spending during the festive season and the fact that the government typically reduces its spending during October-January as the fiscal draws to a close. Development Credit Bank chief dealer Paresh Nair said, “The general feeling is that the situation will improve in the weeks to come. Also, with November 23 being a reporting Friday, there will be lesser demand from banks since most of them would have positioned themselves by now.” While the seasonal tightness has been done away with, the effect of the CRR hike is seen to be gradually wearing off now. With steady inflows, the liquidity situation will gradually improve, said HDFC Bank deputy treasurer Ashish Parthasarathy.