The call money rates remained in the 5.5-6.5% levels in first 2 weeks of March on the back of comfortable liquidity conditions. However in the second half of the month, liquidity tightened as Advance tax outflows reduced liquidity from the system. Banks also had started making provisions for their year end requirements. This led to liquidity draining out from the system and RBI infusing liquidity through the Repo window. Call rates also rose to the 8% levels due to the tight liquidity conditions.
Short term rates continued to remain at elevated levels as the tight liquidity in the system drove up rates. Short term yields went up to the 10% levels up from the 9.5% levels seen during the beginning of the month. Yields in the longer bonds hardened significantly higher than expected inflation numbers dampened market sentiments. This along with the tight liquidity conditions pushed the yield of the 10 yr G Sec from a low of 7.54% on 12th March'08 to close at 7.90% on 28th March'08. The inflation rate rose up to 6.68% for the week ending 15th March'08 against the previous month's level of 4.89% due to the impact of higher manufacturing article prices. The crude prices continued to remain range bound in the USD 100 levels in the international markets after breaking the USD 110 levels. The benchmark 10-yr yield closed at 7.90% against the previous month's level of 7.56%.
The call money rate is expected to ease from current levels as liquidity conditions turn comfortable on the back of government spending. We expect the yield on the benchmark 10yr G Sec to remain in the 7.60-8% levels during the month.
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