Gilts Peak, Call Rates Ranged

Prices of long-term government securities touched new highs today as the liquidity situation continued to be comfortable. Call rates hovered around 6.50-6.75 per cent during the day.

Gilt prices opened 10-15 paise higher than yesterday's closing level. After remaining range-bound in the first couple of hours, prices rallied by another 20-25 paise in afternoon trades.

A primary dealer said: "As prices were already at high levels, market participants were little concerned. However, as the liquidity condition remained comfortable, prices rallied in the afternoon."

Call rates remained slightly over the refinance rate of 6.50 per cent. The demand was thin and overnight rates which opened in the range of 6.60-6.75 per cent range came down to close in the 6.50-6.65 per cent band.

A dealer with a private sector bank said: "Call rates remained little changed from yesterday's position. There was huge supply of liquidity in the market mainly due to dollar buying by public sector banks and it kept call rates soft."

The Reserve Bank of India (RBI) today received four bids worth Rs 6,210 crore at its one-day repo auction which the apex bank accepted at a cut-off rate of 6.50 per cent. There was no bids at the one-day reverse repo auction.

Government security prices are expected to go up by another 10-15 paise tomorrow, but there could be profit-booking at higher levels.

A dealer with a foreign bank said: "Given the liquidity condition in the market, the rally can be stopped only by a large size auction of Rs 7,000-8,000 crore. However, now onwards we are expecting the rally to be gradual and not very sharp as prices have already moved up quite a bit."

Backed by the easy liquidity situation, call rates are expected to remain in the 6.50-6.75 per cent band.