Calls Higher In 7-7.1% Band; Gilts Ranged

Call money rates today opened higher at 7.40-7.50 per cent level despite ample liquidity as lenders created an artificial liquidity squeeze.

The rates cooled off to close in the 7-7.10 range as against the previous close of 6.90-7 band. The government securities market was range-bound and was looking for a clear direction on the bank rate cut front.

"A big lending bank started quoting funds at the 7.40-7.50 per cent levels in the early trades which led the call rates to firm up. But once peer banks started to quote lower rates of about 7.10-7.20 per cent the call rates came down," said a dealer with a private sector bank.

The Reserve Bank of India (RBI) did not receive any bids for the repo and reverse repo auctions under the liquidity adjustment facility as none of the players were willing either to lend or borrow.

Dealers said the big lending bank chose to stay away from the repo auction as it probably wanted to maintain its products position ahead of the reporting Friday.

Inflows were estimated at Rs 5,500 crore, while there were no outflows. Trading volumes were down to around Rs 2,300 crore as against yesterday's volumes of Rs 4,500 crore.

Volumes today were influenced by players borrowing to meet reserve requirements ahead of the reporting Friday and some banks borrowing to meet importers demand for dollars on the back of a weakening rupee.

Prices of government securities were range-bound with the market discounting indications of soft interest rates. The benchmark 11.50 per cent 2011 paper moved up late in the evening by about 10 paise in sync with the rupee recovering to close under the 47 mark. The 11.40 per cent 2008 and the 11.43 per cent 2015 gilts ended steady at Rs 110.30 and Rs 110.12, respectively.

Call money rates are expected to hover at the 7 per cent level and government security prices at the long-end could go up by 10-15 paise on the back of easy liquidity and no auction of gilts being announced by the apex bank.