Call money rates had climbed up over 100 per cent in January and averaged above 50 per cent in the fortnight following the moves. Also RBI has been fairly successful in the past in pulling back the rupee with intervention moves. However, we note that the rupee appreciation has been a temporary reaction in the past, and steady depreciation has resumed within a few months. With prospects on both the export front as well as capital inflows not very optimistic, we expect the rupee to start on a downward path in a couple of months, once the shock treatment wears off. Money markets and bond markets have been hit hard with yields at the three- year segment dropping by 60 basis points. The redeeming factor, unlike January, is that banks have over a week to brace themselves for the increased reserve requirement.

The immediate effect will be an upward movement in call rates to low double-digits for next week. The increase in repo rate also effectively fixes a floor of 8 per cent on call rates. The outflow as aresult of CRR hike from August 29th is estimated at Rs 6,300 crore. This effectively neutralises the expected inflow next month on account of the Resurgent India Bonds. The general refinance facility of banks likely to be utilised (0.25 per cent of NDTL of all borrowing banks) is estimated around Rs 800 crore.