Easy Liquidity Eases Gilts, Call Tracks Refin Rate

Government security prices went up marginally by 5-10 paise today compared with yesterday's closing levels due to the good liquidity in the system. Call rates hovered in the 6.50-6.60 per cent range during the day.

Government security prices opened 10-15 paise higher. But prices slipped later on account of profit-booking. The Reserve Bank of India (RBI) governor's statement reflecting comfort with current low-level yields boosted sentiment and prices staged a short rally which was later stemmed by profit-booking.

A primary dealer said, "The volume of trading was thin and with every marginal increase in price, profit-booking was resorted to. The market is expecting the announcement of auction shortly and that is keeping the prices steady around the current levels despite very liquid market condition."

In the call money market, rates remained steady around 6.50-6.60 per cent throughout the day. A dealer with a private sector bank said, "there was very little demand for the overnight money today as most of the banks have covered their cash reserve requirement already. It is only the repo rate of 6.50 per cent that prevented overnight rates to slip too far."

The excess liquidty in the money market was once again observed in high repo bids. The Reserve Bank of India (RBI) today received eight bids totalling Rs 7,355 crore. The bids were accepted at a cut off rate of 6.50 per cent. There was no bid in the one-day repo auction.

Government security prices are likely to remain stable around the current level tomorrow. Dealers are expecting that there can be short rallies in the initial hours of the day, but there will be selling pressure later on as the prices are already at high levels. Call rates are likely to remain in the range of 6.50-6.65 per cent as the current liquidity condition is likely to prevail.