Gilts Dart Up, Rbi Calm Tempers Overnight Rates

Call rates today traded in the 6.95-7.35 per cent range while government security papers went up sharply by 25-30 paise at the medium and long end of the market on the back of recovery of rupee against dollar.

Call rates opened around 7-7.15 per cent in the morning and surged up to 7.35 per cent as the rupee fell to its all-time low of 47.50. The rates, however, came down later during the day to close around 6.95-7 per cent as the rupee recovered.

A primary dealer said, "There was little concern in the morning hours on the back of forex market volatility. But as the Reserve Bank of India (RBI) did not take any liquidity tightening measure, overnight rates came down gradually to close below seven per cent level."

The RBI today received a single bid of Rs 4,000 crore for its one-day repo auction. The central bank received the bid at a cut-off rate of 6.50 per cent.

A primary dealer said, "The bid in the repo auction gave comfort to the market as it signalled that there is no problem on the liquidity front." The apex bank, however, did not receive any bid for its one-day reverse repo auction.

Trading in the government security market remained dull in the morning with sporadic trades happening at different levels. Prices, however, went up later. A dealer with a nationalised bank said, "We felt that the RBI might mop up liquidity from the market to stop rupee volatility, but it did not happen in that way and the rupee also recovered. This helped the prices to rise."

Call rates are likely to be in the 6.80-7.15 per cent range amidst comfortable liquidity in the system tomorrow. Government security prices are expected to go up by another 10-15 paise during the day, tracking easy call.

The treasury head of a private sector bank said, "We feel that the impact of terrorist attack on the US is over and the market will return to normalcy now."