Funds Keep Call Under Repo, Gilts Still Northward

Call rates declined to close at 6.40-6.50 per cent today -- below the repo rate of 6.50 per cent -- on the back of easy liquidity situation. Government security prices moved up by 20-25 paise across maturities following soft call money rates.

Call rates opened in the 6.75-6.85 per cent range and slipped gradually during the day. A dealer said: "There is enough liquidity in the market and the banks have limited possibilities to deploy that funds. With the reduction in the cash reserve ratio, the demand for call money also came down."

The Reserve Bank of India (RBI) today received four bids of Rs 5,240 crore at the one-day repo auction, which the apex bank accepted at a cut-off rate of 6.50 per cent.

Money market dealers said that the huge bids at the repo auction provided the market the feeling that there is enough liquidity in the system. The RBI did not receive any bids at its one-day reverse repo auction.

Government security prices were flat in the morning, but went up by 20-25 paise in afternoon trades.

The treasury head at a private sector bank said, "The market was expecting an auction announcement and remained rock-steady in the morning. Prices, however, rallied in the afternoon as call rates dipped below the bank rate."

Call rates are likely to remain in the 6.50-6.75 per cent band tomorrow. A dealer with a private sector bank said, "With enough liquidity in the system, we expect the demand to remain low and the rates to remain around 6.50 per cent."

Government security prices are likely to stage a short rally backed by good liquidity condition.

A senior dealer said, "There is liquidity in the market, but there is a possibility of an auction announcement and this will keep the prices range-bound."

According to dealers, there will be a marginal impact on the prices if the Federal Reserve cuts rates tonight.