"As a result inflation could dip to low levels towards the end of 1999", I-Sec said in its report. "Many growth figures including inflation are measured on a YoY basis. The weakness of this methodology is that any abnormality in a year affects the growth for the following year. Owing to this, we may witness very low levels (and possibly negative) inflation towards the end of this calendar year", the commentary said.

The investment and securities trading arm of ICICI said that it was making a few assumptions. "First, we assume a normal monsoon this year and no shortages in food articles. Second, we assume that fuel prices are unlikely to raise sharply. This would bedependent on international oil prices which are currently firming up. The third assumption is that a broad economic recovery is still sometime away and demand growth for manufactured articles is likely to continue to be sluggish. The two-year inflation CAGR would still be near 5 per cent, highlighting that the anomaly of low inflation is due to a high base", the report said.

I-Sec said that the call rates are likely to stay near the 8 per cent bank rate during the next fortnight. "With call rates significantly higher than repo rate the repo saw no applications except on the reporting Friday and March 31. We expect this behavior to continue next fortnight", the report said.

The report further said that many banks were reluctant to take incremental positions ahead of the year end. The thrust was towards credit and to improve credit-deposit ratio. As a result a large portion of the treasury bills auction devolved on the RBI and the PDs.

I-Sec, in its report said that they expect a government securityauction next week around April 7 when the 12 per cent 1999 security matures. Rs 4417.17 crore is expected to come into the system on April 7 when this security matures.

"The issue is likely to be a combination of two or three maturities to cater to the investment preferences of different segments. The next reporting fortnight is likely to see the first tranche of the State Development Loan issue for the fiscal. The total outstanding in RBI repo on March 31 was Rs 400 crore and the overall liquidity would be quite tight", the commentary said.