Gilts Continue Rally On Easy Funds, Call Slotted

Government security prices continued to rally today, while call money rates remained in the range of 6.55 per cent to 6.75 per cent. Dealers said the security prices at the long and medium end of the market moved up by 25-30 paise driven by the excess liquidity in the banking system.

Gilts opened around the same level as Saturday's closing, but moved up gradually during the day.

Dealers said that foreign banks were the most active buyers in the market.

A dealer with a private bank said: "The system is flushed with liquidity and most of the banks have already covered their cash reserve requirement for the fortnight already. This helped the prices to rally today." Dealers said that prices would have risen further but for an expectation of open market sale by the Reserve Bank of India. The 10-year paper yield closed at 8.12 today compared to Saturday's closing of 8.15 per cent.

Call money rat market was calm as it had been in the last two weeks. There was very little demand in the market as most of the banks are flooded with liquidity. The overnight rates opened in the range of 6.70 per cent to 6.80 per cent and dipped gradually during the day to close in the range of 6.55 per cent to 6.60 per cent. Dealers said that most of the deals were done around the 6.65 per cent level.

A primary dealer said: "Demand for call money was lower in the last week and today it was even lower as most of the banks have already covered their positions. Overnight rates, however, remained just over the repo rate as the lenders refused to lend below the repo rate."

The Reserve Bank of India today received bid of Rs 730 crore in its one-day repo auction. The central bank accepted all the bids at a cut-off rate of 6.50 per cent.

Call rates are likely to be in a range of 6.50 per cent to 6.80 per cent amid low level of demand. Security prices are expected to move up but another 5-20 paise during the days on the back of ample liquidity in the system.