RBI was all geared up to mop the liquidity out of the system during the week. It first set an upper limit for the LAF window on Monday to ensure participation for the auction of market stabilization bonds worth Rs 6,000 crore on Tuesday, March 6. The market stabilization scheme (MSS) is a new initiative launched after almost 18 months in an effort to mop up excessive liquidity created by RBI's intervention in the currency market. Henceforth, the central bank will announce the corpus of MSS auctions every Friday.
Traders didn't react too severely to the inflation data released on Friday which stood marginally higher at 6.10 per cent as of February 24. On Friday the RBI auctioned Rs 4,000 crore worth of the 8.07 per cent GOI 2017 paper at lower than expected cut off yield. This, in turn, boosted market sentiment. The yield on the 10 year benchmark 8.07 per cent GOI 2017 bond traded within a narrow range to close at 8.01 per cent on Friday, March 9, four basis points higher than last week's close of 7.97 per cent.
Outlook
Liquidity concerns will weigh heavily on sentiment with an advance tax outflow amounting Rs 30,000 crore due over the coming week. Also there is an auction amounting to Rs 2,284 crore by 10 states slated for Tuesday, March 13 with another round of MSS on Wednesday amounting to Rs 2,000 crore. Traders are unlikely to take large positions amid the absence of any positive cues and prevailing uncertainty in the market.
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