Call Slips Anew On Liquidity Glut, Gilts Glitter

Call rates slipped to close in the 6.30-6.40 per cent range today amidst comfortable liquidity in the market. The rally in government security prices continued with a 25-30 paise jump in medium and long end papers.

Call rates opened in the 6.55-6.65 per cent range and dipped later to close below the repo rate of 6.50 per cent for the second consecutive day. Dealers said that in the afternoon hours most of the deals were done below the repo rate.

A dealer with a private sector bank said: "There was no demand for overnight money before the end of the reporting fortnight. This pushed down call rates below the 6.50-per cent mark."

Friday being a bank holiday, Thursday is effectively the last day of the reporting fortnight.

Government security prices went up sharply till the announcement of the open market auction with most of the rally concentrated at the long end of the market. Prices at the short end also rallied by 20-50 paise in the morning.

After the auction announcement, many of the participants rushed to book profits and a substantial part of the gains was wiped out.

A dealer with a foreign bank said: "In the morning it was a liquidity-driven rally. However, as the Reserve Bank of India (RBI) expressed its discomfort over the declining interest rates by announcing the open market auction, profit-booking took place."

The RBI today received 10 bids worth Rs 4,485 crore. The apex bank accepted all the bids at a cut-off rate of 6.50 per cent. The weighted average yield was 6.49 per cent.

Dealers said that low call rates prompted the banks to put money in the repo auction even below the refinance rate. There were no bids at the one-day reverse repo auction.

Call rates are likely to remain in the 6.30-6.60 per cent range tomorrow on the back of huge liquidity overhang in the system. The rally in government security prices will continue, tracking easy call rates.