Calls Dip, Gilts Rise On Rate Cut Expectations

Call money rates came down to close in the range of 8.25 per cent to 8.50 per cent, while government security prices moved up by 10-15 paise across the maturity on the back of easing of overnight rates and the expectations of a bank rate cut.

Call rates opened in the region of 8.80 per cent to 8.90 per cent in the morning, but came down gradually to close in the region of 8.25 per cent to 8.50 per cent after the reverse repo auction. A dealer said, "the liquidity in the market seems to have improved a bit as the bid in the reverse repo auction was less." The dealer said the source of liquidity was not identified.

Another dealer with a private sector bank, however, said, "this is the second week of the reporting fortnight and hence the demand for funds was less. This was reflected both in the lower call rate as well as lower number of bids in the reverse repo auction."

The apex bank today received seven bids of Rs 640 crore in the one day reverse repo auction, of which the central bank received six bids of Rs 620 crore at a cut-off rate of 8.75 per cent. The weighted average of cut-off rates was also at 8.75 per cent. The RBI also received a single bid of Rs 4,000 crore, which it did not accept.

Government security prices went up by 10-15 paise across all the maturities on the expectation of a bank rate cut shortly. The chief dealer of a private sector bank said, "on the back of the cut in the cash reserve ratio, we expect the bank rate to be cut shortly. Moreover, if the Fed rate is cut tonight, there will be more pressure on the RBI to bring down the bank rate."

Call rates are likely to come down further and stay in the region of eight per cent to 8.50 per cent as the demand is likely to ease down with the approach of reporting Friday. The movement of government security prices, however, will depend upon the decision of the Fed.