According to the I-Sec weekly report issued on Saturday, the current tightness in the system is unlikely to ease even after the Rs 3,000 crore and Rs 2,000 crore worth of inflows come into the system on January 18 and February 7 respectively. The situation may ease only if the refinance taken by the primary dealers is repaid, it said.

It expects a cash reserve rates (CRR) cuts this fiscal which will insure availability of sufficient credit to commercial sector. However, it has ruled out a bank rate cut.

"We expect CRR cuts to be effected this fiscal to prepare the ground ahead for next year's market borrowing programme," it said.

It has ruled out any further issue of dated securities through auction or private placement. "The borrowing programme of the centralgovernment is likely to be restricted to treasury bills. With five issues of 364-day T-bills remaining this fiscal, Rs 3,000 crore will be raised," it said.

The government's gross borrowing programme has touched Rs 82,202 crore as against the budgeted Rs 79,376 crore. The shortfall in tax collection-- which amounts to Rs 10,000 crore--and excess in government expenditure will be met through capital receipts, saving collections and market borrowings. The government expenditure grew at the rate of 29 per cent in the first seven months as against 14 per cent budgeted for the full year.

The total mopup through PSU disinvestment amounts to Rs 225 crore as against the target of Rs 5,000 crore.

According to the I-Sec report, liquidity tightened sharply last week as most banks purchased securities on RBI's open market operations (OMO) list ahead of redemption of the zero-coupon 1999 securities on January 18. "Some banks are believed to have under-covered their CRR in the first week of reporting fortnight andscrambled to cover towards the end of the fortnight which resulted in call rates sharply shooting up," it said.

The tight liquidity at the end of the fortnight resulted in negligible participation in the 14-day and 91-day treasury bill auctions held on January 15. "The 364-day T-bill received significant response with many holders of the zero-coupon bond maturing on January 18 seeking to replace it," the report said.

According to I-Sec, the bond market sentiment was bullish in the first week of the fortnight ahead of Rs 5,000 crore redemptions over the next few weeks. "Prices appreciated about 5 paise in the two- and three-year segment. RBI's OMO also attractedlarge participation and sales during the fortnight.

This drained liquidity from the system and the resultant high call rates led to some selling of liquid short-tenor dated securities," the report added.

The gilts prices are expected to recover a bit over the fortnight. "The short term T-bills yield curve inverted during the last two days of thefortnight and one month P1+ CP rates increased from 10 per cent to 16 per cent, while three months rates went up from 10.55 per cent to 11.5-12 per cent," the report said.