Ample Liquidity Keeps Call Tight; Medium-, Short-End Gilts Look Up

Call money rates remained in a tight range of 6.90 per cent to 7.10 per cent today on the back of ample liquidity in the system. And in the government securities market, focus has been shifted from the long-end to the medium- and short-end of the market.

Call rates opened in the range of 7 per cent to 7.10 per cent and remained there during most of the trading. However, the rates came down towards the end of the day and closed in the range of 6.90 per cent to 6.95 per cent. A dealer said, "Despite being the first week of the reporting fortnight, liquidity was easy in the market and demand was also low."

The liquidity comfort in the market was reflected in the daily liquidity adjustment facility auction. The Reserve Bank of India (RBI) received a single bid of Rs 6,000 crore in the one-day repo auction, which it accepted at a cut-off rate of 6.50 per cent. However, the central bank did not receive any bid for its one-day reverse repo auction.

Prices of government securities fell by 10-15 paise at the long-end of the market. A dealer said, "There were two factors that effected the fall in the prices. One is further weakening of the rupee which raised concerns in the market. Moreover, as the finance minister said that the government will have to increase the expenditure to give a boost to the economy, players are expecting the central bank to go aggressive in conducting auction of government securities. This has weakened the sentiment further."

However, at the medium- to short-end of the market, the prices moved up by 10-15 paise. A dealer said, "There has been hardly any trade at the medium- and short-ends of the market in recent times. People have shifted attention to that end expecting further supply of long-dated papers through fresh auctions."

Call money rates are likely to be around 7 per cent tomorrow on the back comfortable liquidity in the system, while the government security prices are expected to track the rupee.