Cash Glut Keeps Call Rates Subdued, Gilts Gallop

Inter-bank call money rates ruled lower in the 6.60-7 per cent range today on the back of easy liquidity. Government security prices moved up by 10-15 paise across maturities following soft call money rates.

Call rates opened in the 6.90-7 per cent band and went down gradually to close in the 6.60-6.65 per cent region.

According to a dealer, there was enough liquidity in the market after the infusion of Rs 6,000 crore through the first round of cash reserve ratio cut from 7.50 per cent to 5.75 per cent.

Another dealer said, "The rates were bit higher in the morning as most of the players were expecting slight strain on the liquidity situation because of the 14-day repo starting today. However, it seems that not much was put in that and hence the rates came down in the afternoon."

Government security prices jumped by 10-15 paise in the morning following lower call rates. Prices, however, failed to rise after that.

The treasury head at a private sector bank said, "The prices are already high and hence there is little possibility for them to go up drastically. Moreover, the market was expecting a repo rate cut which the Reserve Bank of India (RBI) refused to announce. This kept the prices stable in the later hours of the day."

Call rates are likely to remain in the 6.50-6.75 per cent range tomorrow. A dealer with a private sector bank said, "We expect the demand to remain low and the rates to remain just over the bank rate of 6.50 per cent."

Government security prices are likely to stage a short rally backed by good liquidity condition. A senior dealer said, "We do not expect any sharp rally unless the repo rate is cut. However, as there is enough liquidity in the market, prices should continue to go up."