Calls Stay Narrow, Liquidity Keeps Gilts High

Call money rates remained in a 6.90-7.10 per cent range today, while gilt prices surged by 25-30 paise at the medium to long end on the back of ample liquidity.

"Overnight rates were pretty steady today around 7 per cent. There could be two possible sources of liquidity -- coupon payments on government securities and the return of advance tax outflows into the system. As there was no fear of auction, lenders were willing to lend money at low rates as well," a primary dealer said.

"The credit offtake being very slow, it leaves out large amount of liquidity in the hands of banks which is also a reason for a low overnight rates," another dealer said.

The Reserve Bank of India (RBI) received two bids of Rs 4,600 crore in its one-day repo auction both, of which the central bank accepted at the cut-off rate of 6.50 per cent. Dealers said two large nationalised banks participated in the auction.

The RBI did not receive any bid for its one-day reverse repo auction. Prices of government securities continued to rally as a result of ample liquidity. Prices went up by 25-30 paise at the medium to longer end of the market.

"The hope of a bank rate cut along with the liquidity helped in the prices to move up considerably," a dealer with a private sector bank said.

Call money rates are likely hover around the 7 per cent level tomorrow as dealers do not see any major threat to the liquidity.

"Given the liquidity position, overnight rates should be in the 6.75-7.25 per cent band," a dealer with a private sector bank said.

Government security prices may move up by another 15-20 paise at the longer end. "The outlook on liquidity is positive as the market will receive Rs 5,700 crore of redemption of the government security in the last week of the month. This will keep the sentiment up," the treasury head of a private sector bank said.