Call Nudges Up, Gilts Shed 35 Paise

Call rates jumped to 6.70-6.90 per cent levels today against Tuesday's close of 6.60-6.70 per cent as banks resorted to borrowings to cover their positions in anticipation of tightening of rates.

The Reserve Bank of India (RBI) today held open market operations and also announced a twin auction to mop up Rs 6,000 crore tomorrow which led government security prices to dip by 30-35 paise across the board.

The Rs 4,000 crore mop-up by RBI through the auction of the 10.25 per cent government paper maturing in 2021 at a cut-off price of Rs 102.50 proves that there is liquidity overhang in the system. The apex bank accepted the single bid at the auction worth Rs 15,500 crore at 6.5 per cent.

"We expect the RBI to announce a series of auctions which will drain out liquidity from the system leading to hardening of call rates. The yields on government security have been falling sharply lately and the auctions are expected to stem this slide.

"Players will bid cautiously in the market," a dealer with a private sector bank said and pointed out that there was substantial liquidity in the market on account of the unavailing of the export refinance facility.

Call rates were range-bound for most part of the day with majority of the deals being struck at the 6.70-6.90 per cent levels. Stray deals were also witnessed at the refinance rate of seven per cent, he added.

The RBI will auction on Thursday the 13.05 per cent government paper maturing in 2007 for up to Rs 2,000 crore and the 10.71 per cent security maturing in 2015 for up to Rs 4,000 crore in a bid to squeeze liquidity from the system.

Call rates tomorrow are expected to be steady around 6.70-6.90 per cent due to the ample liquidity situation, while government securities may move in a 5-10 paise range on either side of today's level.