Call Weakens On Poor Demand, Gilts Surge

Call rates stayed in the 6.75-7 per cent range on the back of lower demand on the eve of reporting Friday while government security prices moved up by 15-20 paise at the longer end of the market.

Call rates opened around 6.90-7 per cent in the morning and closed marginally lower in the 6.75-6.80 per cent range.

A primary dealer said, "As most of the banks and the primary dealers have covered their position already, the demand was pretty low which kept overnight rates almost in the same range as on Wednesday."

The liquidity situation in the money market has improved considerably since last week following the redemption and the coupon payments of the government securities.

Dealers also said that the return of the liquidity that the Reserve Bank of India (RBI) mopped up in April through government security suction also contributed to the increased liquidity in the market.

The RBI today received two bids of Rs 6,600 crore for its one-day repo auction. The central bank received both the bids at the cut-off rate of 6.50 per cent. The weighted average of the cut-off rate was at 6.48 per cent.

Government security prices moved up sharply in the morning by 25-30 paise as the central government privately placed Rs 5,000 crore of government security with the central bank which raised the hope that there will be no auction of government papers immediately.

Prices, however, came down a bit as the rupee weakened against the greenback. Dealers said the net gain in prices at the longer end of the market during the day was 15-20 paise.

Call rates are likely to be in the 6.60-6.90 per cent range on the back of even thinner demand on the reporting fortnight. Government security prices are expected to rally on the back of comfortable liquidity position.