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Gilts Flip On Auction Eve, Overnight Rates Crest Repo


Government security prices fell by 25-30 paise today ahead of the Rs 3,000 crore auction of 8-year floating rate paper, while call money rates continued to hover just over the refinance rate of 6.50 per cent amidst comfortable liquidity in the banking system.

Security prices opened at yesterday's closing level and fell during afternoon trades because of profit-booking. However, the market saw a little bit of buying interest in later trades, which checked the dip in prices.

The treasury head of a private sector bank said players felt that there had been overappreciation of prices over the past one-and-a-half month that created selling pressure.

A primary dealer said: "Market participants were cautious about today's auction which also contributed to the fall in prices." Dealers said the overall trading was mainly at the long-end of the market.

Today's repo aution has reflected the ample liquidity present in the banking system. The Reserve Bank of India (RBI) received two bids of Rs 11,070 crore for its one-day repo auction. The central bank accepted all the bids at 6.50 per cent cut-off rate. There were no bids for the reverse repo auction.

Money market players said though the deposit growth continued to be the main source of liquidity, it was also helped by the RBI's dollar-buying. According to some dealers, about Rs 8,000 crore has entered the system during the week on account of the central bank's greenback purchases.

The huge liquidity overhang continued to keep the call rates in the range of 6.50 per cent to 6.65 per cent.

A primary dealer said: "There was no demand for overnight money. Moreover, as very few players put in money in the government security market, more liquidity was available. Both of these factors kept the call in a narrow range."

Government security prices are likely to remain stable guided by today's auction result, while call money rates will remain soft and hover around repo rate as the liquidity is expected to remain comfortable.

First Published: Thu, December 06 2001. 00:00 IST