Dying Moment Rush Tosses Call Up, Gilts Crash

Call rates ruled higher in the 7-7.50 per cent range compared with yesterday's band of 6.80-6.95 per cent as some of the banks rush for liquidity to cover their position at the very last moment. Government security papers fell by 30-40 paise at the long end of the market as finance minister (FM) said that the interest rates are already at their lowest levels.

Call rates today opened around 7-7.10 per cent in the morning. The rates, however, went up during the day to touch 7.50 per cent.

A dealer with a private sector bank said, "As there was virtually no activity in the overnight market yesterday due to employee strike at the Reserve Bank of India (RBI), there were uncovered position with some banks. This caused overnight rates to go up."

There was no bid in the three-day repo and reverse repo auction today. Dealers said that the banks and primary dealers stayed away from putting money in the repo window as they do not want to disturb their covered position on reporting Friday.

Money market dealers said that along with FM's statement, the volatility in the forex market and the Rs 7,000 crore of twin auction of government security also dampened the sentiment in the gilts market.

Said a primary dealer, "The sentiment was slightly down and FM's statement triggered the fall in prices. The weakening of rupee added the extra pressure on the prices."

A dealer with a private sector bank said, "Because of the employee strike at the Reserve Bank of India yesterday, there were some uncovered position. But today being the reporting Friday, there were very few lenders in the market resulting in very high call rates. Some of the banks sold their government security holding to cover their positions."

Call rates are likely to be in the 7-7.50 per cent range tomorrow on the back of high demand on the very first day of the reporting fortnight as well as possible tightening of liquidity on Monday due to twin auction of Rs 7,000 crore.