Call Poised Firmly, Waning War Clouds Send Gilts Soaring

Long and medium tenor government security prices went up by 45-60 paise today as the rupee stabilised after remaining volatile in the morning. Call rates closed firm around 8.75-9.25 per cent as some banks rushed for liquidity on the reporting Friday.

Government security prices opened lower and trading was very thin in the very first hours of trading. Prices, however, started inching up and ended high.

A primary dealer said, "The rupee after a sharp fall in the early hours, recovered a bit and remained stable afterwards. This rendered comfort to the government security market. Moreover, market participants discounted the possibility of war taking place now. This also helped the prices to go up."

Dealers also said that the sentiment was boosted by the fact that another Rs 2,000 crore of liquidity will enter the banking system through the second round of cut in the cash reserve ratio (CRR) effective from tomorrow.

Call rates opened in the 8-8.50 per cent band, but slipped later to touch a low of 7.25 per cent. The rates, however, rose to close around 8.75-9.25 per cent.

A dealer with a private sector bank said, "Some banks did not cover their products and rushed for liquidity today. That is why the demand was high. Moreover, a few banks were believed to have borrowed in the call market to buy dollars. These two pushed overnight rates high."

There was no bid in the 3-day repo auction. The apex bank received one bid of Rs 250 crore in 3-day reverse repo auction. The bid was accepted at 8.50 per cent cutoff.

The trading in the government security is likely to remain thin and the prices are likely to go up a bit tomorrow with the CRR cut taking effect. Call rates are likely to remain in the 6.75-7.25 per cent range as the liquidity condition will improve and demand will remain moderate.