Auction Outflow Cranks Up Call; Gilts Tilt South

Call money rates went up sharply today to remain in the range of 7.30 per cent to 7.70 per cent as the liquidity condition in the market deteriorated after the Rs 5,000 crore open-market auction on Friday.

And the prices of government securities went down marginally as the overnight rates tightened.

Call rates opened in the range of 7.30 per cent to 7.50 per cent and went up during the day to close in the range of 7.50 per cent to 7.70 per cent.

A dealer with a private sector bank said, "The liquidity in the market was slightly under strain due to the auction outflow. Moreover, since it is the beginning of a new reporting fortnight, there was some demand pressure as well."

The strain in the liquidity was also reflected in the Reserve Bank of India's (RBI's) liquidity adjustment facility auction, as there was no bid in the one-day repo auction.

However, the central bank received a bid of Rs 20 crore in its one-day reverse repo auction, which it accepted at a cut-off rate of 8.50 per cent.

As the overnight rates went high and the liquidity worsened, prices of the government securities dipped. Dealers said that the prices fell by 10-15 paise at the medium- to long-end of the market.

A dealer said, "The government securities market stood direction-less today. Though the prices declined a bit, it should not be considered as a trend, as the market has the potential to move in the opposite direction as well."

Dealers also said that they were expecting an auction announcement very shortly which kept the players away from taking any position.

A treasury head of a private-sector bank said, "As the liquidity is under strain, another auction will push the prices further down."

Call money rates are expected to remain in the range of 7.25 cent to 7.75 per cent tomorrow as the demand for overnight money will continue to remain high.

The sentiment in the government securities market is likely to remain subdued and the prices may hover in the band of 10-15 paise.