Copious Funds Keep Gilts Northward, Call Calm

Call rates remained in the narrow range of 6.90-7.10 per cent today while the government security prices went up by 25-40 paise at the medium and longer end of the market on the back of ample liquidity in the system.

A primary dealer said, "Overnight rates remained restricted in a narrow range as there was not much demand. Banks and primary dealers seem to have covered their position already."

Another dealer said, "The low credit offtake and the huge deposit mobilisation by the banks leaves out large amount of liquidity with the banks resulting in low overnights."

"Return of the advance tax outflow and the inflow on account of redemption of government security also helped in keeping the system liquid," he added.

The Reserve Bank of India (RBI) received single bid of Rs 3,300 crore in its one-day repo auction which the apex bank accepted at the cut-off rate of 6.50 per cent. Dealers said the bid came from a large nationalised bank. The central bank, however, did not receive any bid for its one-day reverse repo auction.

Government security prices continued its rally with the help of ample liquidity. Dealers said that the prices went up by 35-40 paise at the medium end, while the rally at the longer end was upto 25-30 paise.

A dealer with a private sector bank said, "The market is flooded with liquidity, but as the long papers have been oversold, players shift focus to the medium end papers."

Call rates are likely to hover around the seven per cent level tomorrow as the dealers don't see any shift in liquidity situation. Government security prices are likely to move up by another 25-30 paise at the medium and longer end on the back of soft call and the expectation of a Fed rate cut on June 27.