Auction Outflow Crimps Liquidity, Call Darts Up

Call money rates surged to the 10 per cent level today after a couple of months as the auction outflow of Rs 5,000 crore, just before the closing of the reporting fortnight, has caused liquidity strain in the market. Government security prices went up marginally by 5-10 paise at the short-end of the market.

Call rates opened high in the range of 8 per cent to 8.25 per cent but rallied to close at 10 per cent as public sector banks declined to lend at a lower rate.

A dealer with a private sector bank said, "The auction outflow has hampered the liquidity position a bit. Moreover, as it the just before the reporting Friday, no one were interested in lending ."

The Reserve Bank of India (RBI) did not receive any bid for its one-day repo auction. However, it received one bid of Rs 100 crore for the one-day reverse repo auction, which it accepted at a cut-off rate of 8.50 per cent.

A dealer said, "The transaction in the liquidity adjustment facility auctions reflected the liquidity position in the system."

The prices of government securities rose marginally amidst thin trading volume. Dealers said the prices were up by 10-15 paise in the morning but came down a bit later.

The chief dealer of a private sector bank said, "After the auction and just before the reporting Friday, nobody was interested in building fresh positions."

Dealers, however, said that there has been slight shift of attention towards the short-term papers from the long-term.

Call money rates are likely to open high between 8.25 per cent and 8.50 per cent tomorrow, but are expected close around 7 per cent. The government security prices are expected to remain range-bound with a positive bias.