Calls In 8.50-9% Range, Gilts Rally

Call money rates stayed in the range of 8.50 per cent to nine per cent, while the government security prices rallied by 15-25 paise across the maturities on the back of 50 basis points cut in the Fed rate.

Calls opened lower at 8.50 per cent in the morning as many of the players expected the Reserve Bank of India (RBI) to reduce the reverse repo rate following the Fed rate cut. A dealer said, "we were expecting the central bank to cut down the reverse repo rate by another 25 basis points and hence the lenders were lending at a lower rate." The overnight rates, however, went up as some of the foreign banks rushed for liquidity in the afternoon.

A dealer with a private sector bank said, "the banks might not have covered their position in the morning on the expectation of a reduction in the reverse repo rate. As it did not happen, they had to go for huge borrowing at the last moment."

The RBI today received six bids of Rs 735 crore in its reverse repo auction, out of which it accepted four bids of Rs 585 crore. The cut-off rate, as well as the weighted average of the cut-off yield in the auction was at 8.75 per cent. The central bank, however, did not receive any bid for the one day repo auction.

Government security prices rallied sharply in the morning hours following the Fed rate cut. Dealers said that the prices across all the maturities went up by 35-40 paise in the morning. The prices, however, came down following the heavy profit-booking.

The chief dealer of a bank said, "the market is oversupplied with government securities and hence there was profit-booking following the rise in price." Dealers said that closing prices were 15-25 paise higher than Monday's closing.

Call money rates are likely to be in the range of 8.25 per cent to 8.75 per cent as most of the banks have covered their positions for the reporting fortnight. Government security prices are likely to move up by another 10-15 paise on the expectation of a bank rate cut.