Borrowing Concern Sends Gilts Crashing, Call Ranged

Government security prices fell by 60-90 paise at the longer end of the market today on concerns over higher government borrowings in the next financial year. Call rates were in the range of 6.50-6.80 per cent.

Government security prices opened 15-20 paise lower and slipped further during the day. Dealers said that some of the big players were absent in the market.

A primary dealer said, "The news of higher defence allocation led to the possibility of bigger government expenditure which was the prime reason for the prices going down." A dealer with a private sector bank also said that the lack of buying interest ahead of the Budget and the absence of big players were also responsible for the dip in security prices.

In the call money market, rates opened in the range of 6.50-6.65 per cent. The rates went up to 6.85 per cent but settled down around 6.60-6.75 per cent at the end of the day.

A dealer with a public sector bank said, "there was inadequate covering of cash reserve requirement by some banks that caused call rates to appreciate a bit today. However, as the demand tapered off in the afternoon the rates came down as well."

The Reserve Bank of India today received eight bids of Rs 1,365 crore for its one-day repo auction. The bids were accepted at a cut-off rate of 6.50 per cent. The central bank did not receive any bid for one-day reverse repo auction today.

In the government security market, trading volume will remain thin and the prices are expected to go down by 20-25 paise with most of the traders staying on the sidelines. In the call money market as the liquidity remains comfortable, overnight rates are expected to be in the 6.50-6.75 per cent range.