Call Rates Slips To Test 7% Levels, Gilts Rally

Call rates dipped to around seven per cent today as the growth in bank deposits and coupon payments on government securities improved the liquidity situation.

Government security prices increased by 15-20 paise at the long and medium end in tune with the soft call rates.

Call rates opened in the 7.25-7.50 per cent range. A dealer said, "Inflows worth Rs 1,200 crore on account of coupon payments on different government securities kept the market liquid which was reflected in a lower call rate."

Another dealer said, "As the stock market condition is not good, many of the investors have parked their money in banks. This has also increased the liquidity comfort of the banks and led to lower demand in the overnight money market."

Call money rates fell even more after the liquidity adjustment facility auction to close in the range of 7-7.25 per cent.

The Reserve Bank of India (RBI) received two bids of Rs 6,500 crore at its one-day repo auction, and accepted one for Rs 2,750 crore. The cut-off rate for the auction was pegged at 6.75 per cent.

A dealer with a private sector bank said, "The central bank gave the signal that it is comfortable with the current liquidity situation by accepting the repo bid. This prompts the call rates to fall further."

Government security prices improved by 15-20 paise at the medium to long end as call rates came down.

The chief dealer at a private sector bank said, "The sentiment in the market has been good, but the liquidity was not enough to support a rally. As the liquidity situation turned comfortable, the market was set for a rally."

Call rates are likely to remain in the 7-7.50 per cent band as the liquidity will continue to remain good. A dealer with a nationalised bank said, "There will be inflows of another Rs 41.91 crore as coupon payments on government securities which will make the market further liquid."

Government security prices, tracking the call rates, are expected to gain by 15-20 paise at the medium to long end.