Calls Rule Easy, Gilts Witness Good Buying Interest

Call money rates today ended at 6.95-7.05 per cent as against the previous close of 6.90-7.10 per cent due to ample liquidity in the banking system.

Government papers at the medium end saw lot of buying interest with the yield on the benchmark 11.50 per cent 2011 paper touching a low of 9.63 per cent. This paper gained about 20 paise.

"There was plentiful supply of funds in the market and call money rates ruled easy for most part of the day," said a dealer with a private sector bank.

The rates eased as a big commercial bank holding advance tax collection on behalf of the government started offering funds at 6.95 levels. "That there was a single bid at the one-day repo auction for mopping up Rs 2,500 crore is an indicator of the comfortable liquidity in the banking system," said the dealer.

At the one-day repo auction, conducted under the liquidity adjustment facility (LAF), the RBI received one bid for Rs 2,500 crore and accepted the same at a cut-off rate of 6.50 per cent. The apex bank did not receive any bid in the reverse repo auction.

The inflows into the banking system amounted to Rs 14.745 crore while the outflows were Rs 2,500 crore. There was a net outflow of Rs 2485.255 crore from the system.

As the fate of the Indian services sector is intertwined with that of the US economy, the market is expecting a 100 basis points bank rate cut towards this month-end, if the FOMC meeting in the US on June 27 announces a cut in the Fed funds rate. The yield on 10-year paper could then dip to 9.40-9.50 per cent.

The 10-year paper opened today at Rs 112 and closed at around Rs 112.18. Buying interest has also come into the illiquid papers and they are seen to be aligning with the yield curve. Some public sector banks were 'switching' in the market by booking profit at the longer end and getting into the shorter-end government securities.

The call money market is expected to be range-bound tomorrow (6.90-7.10 per cent) and the government securities at the medium end could go up by around 15 paise.