Coupon Outgo Slashes Call, Finminspeak Lifts Gilts

Call rates dipped to seven per cent today as the liquidity situation improved considerably on the back of coupon payments on government securities. Government security prices moved up by 40-50 paise at the medium to longer end of the market as a finance ministry official negated the possibility of any fresh government auction till Friday.

Call rates, opened high in the 7.50-7.75 per cent range and appreciated further to touch the intra-day high of 7.80 per cent. Rates, however, slumped in the afternoon hours and closed at seven per cent.

A dealer said, "The lenders were quoting high in the morning. But there were very few borrowers at that rate as market was fluid. This made the lenders decrease the rate."

Liquidity in the call market was helped by more than Rs 500 crore of inflow on account of coupon payments on government security today. However, there was no inflow or outflow through liquidity adjustment facility auction as the central bank did not receive any bid either for its one-day repo or one-day reverse repo auction.

A dealer with a private sector bank said, "Call rate is in between the repo and the reverse repo rate and, hence, neither the players with surplus funds are interested in repo auction nor the traditional borrowers interested in taking money from reverse repo window."

Government security prices rallied sharply at the medium-to-longer end of the market. A senior dealer said, "There are three reasons that pushed up the prices -- a lower call, statement by finance ministry official that there will be no auction this week and thirdly, the huge coupon inflow in the last week of the month."

Call rates are likely to remain in the 7-7.50 per cent range tomorrow as the liquidity condition will remain undisturbed. The government security prices are expected to continue their rally though there may be slight shift of focus to the medium-to-short term segment.