Call Hovers Around 8.5%, Gilts Ranged

Call rates remained in the 8.50-8.80 per cent range today compared with yesterday's 8.50-9 per cent. Government security prices remained rangebound on the back of political instability at the Central level, concern over further auction and the weakening of the rupee against the greenback.

Call rates opened in the 8.70-8.80 per cent band in the morning. A dealer said, "As the Reserve Bank of India (RBI) has been lending at 8.75 per cent, borrowers were not ready to accept any deal at more than that level. This kept the overnight rates around the reverse repo rate."

Call rates, however, dipped a bit after the liquidity adjustment facility auction. The RBI today pumped in Rs 1,145 crore through a reverse repo auction. The cut-off rate for the auction was pegged at 8.75 per cent. The apex bank, however, did not receive any bids for its one-day repo auction. Dealers said that few players accessed the back-stop facility, the rates of interest for which was at 9.75 per cent.

Dealers, however, said that banks as well as primary dealers were covering ahead of an expected auction. A dealer with a private sector bank said, "Everybody in the market is expecting an auction by the end of this week and hence keeping space to accommodate that."

Government security prices moved downwards in the morning on the back of political instability and recovered in the later part of the day on bank rate cut expectation. According to dealers, prices closed almost at the Monday's closing level.

A primary dealer said, "There is already oversupply in the government security market and another auction will make the situation worse. This concern kept the sentiment down."

"The weakness of rupee also kept the trend subdued, though we are not expecting a sharp volatility in the forex market," he added.

Call rates are likely to remain in the 8.50-9 per cent as the dealers expect the liquidity condition to remain unchanged. Government security prices are seen to move within a narrow range of 10-15 paise across all maturities.