Call Rates Rocket To 15% On Tax Outgo

Call rates zoomed to 15 per cent today, while the government security prices crashed by Rs 1-1.25 as the liquidity situation worsened because of advance tax outflow.

Call rate today opened in the range of 10-12 per cent in the morning as most of the big lenders were not present in the market. The rates went up further during the day. Dealers said that though the deals were mostly in the range of 12-13 per cent, stray deals were reported at 15 per cent even.

Said a dealer with a private sector bank, "Public sector banks were not lending in the market and the borrowers were not sure whether the Reserve Bank of India (RBI) would lend money at 8.50 per cent. That's why they went for high cost overnight funds."

The Reserve Bank, however, accepted all the 16 bids it received and infused Rs 1,410 crore in the system. The cut-off rate for the auction was 8.50 per cent with weighted average of accepted bids at 8.98 per cent. There was no bid for the repo auction.

Overnight rates, however, came down as the public sector banks came back in the afternoon and demand petered off as all the banks had covered their position by the time.

Government security prices fell sharply tracking tight call market. Dealers said that though the RBI tried to provide stability to the market by infusing liquidity through open market purchase of government securities, the advance tax outflow made it kept the market volatile.

The treasury head of a private sector bank said, "The liquidity condition is under severe strain because of the advance tax outflow and the situation is likely to continue as long as the tax outflow money does not come back to the system."

A primary dealer added that though the forex market is stable there is concern over international development that can weaken the rupee further.

Call rates are likely to remain in the range of 7.75-8.75 per cent as the liquidity will remain under pressure and tomorrow being the first day of reporting fortnight, the demand will be high. Government security prices will track trends in call and forex market.