Call Firms Up, Gilts Trip Over Auction Fears

Higher demand in the initial part of the new reporting fortnight saw call rates hovering in the 7-7.15 per cent range, while government security prices fell by 40-50 paise over concern of a possible auction during the week.

Call rates opened around 7-7.10 per cent in the morning and inched up a bit after the liquidity adjustment facility auction.

A dealer said, "Liquidity was slightly under pressure as demand was higher in the starting of the reporting fortnight. Moreover, as major lenders put money in the repo auction, liquidity condition was further worsened."

The Reserve Bank of India (RBI) today received a single bid of Rs 6,000 crore in its two-day repo auction. The central bank received the bid at the cut-off rate of 6.50 per cent.

Government security prices continued their downfall as most banks and primary dealers stayed on the sidelines on expectations of a fresh auction.

A dealer with a nationalised bank said, "The latest ways and means advances figure indicates that the central bank will have to conduct another auction in the week. This has kept the players out of action."

Dealers said that concerns expressed by international rating agencies -- Fitch and Moody-- about the economy and a weak rupee also played their part to put pressure on securities' prices.

A chief dealer with a private sector bank said, "The outlook as expressed by the two rating agencies point to more borrowing requirement of the government and the fall of rupee against the dollar. Both of these can have negative impact on security prices."

Both the markets will remain closed tomorrow on account of a public holiday. The overnight rates will remain in the range of seven per cent to 7.50 per cent on Wednesday owing to tight liquidity and gilt prices are expected to go down by another 15-20 paise at the longer end of the market.