Gilts Rally Arrested On Auction Buzz, Call Ranged

Call rates remained in the 6.80-6.95 per cent range today as the money market remained awash with liquidity, while government security prices went up by 10-15 paise at the long end of the market as the Reserve Bank of India (RBI) governor reiterated the central bank's bias to soft interest rate regime yesterday.

Call rates opened higher in the 6.80-6.90 per cent range in the morning, but inched up in the afternoon hours to close around 6.90-6.95 per cent. A primary dealer said, "The demand was very low in the morning as most of the banks had already covered their position for the fortnight. However, the weakening of the rupee against dollar caused a bit of concern which pushed up overnights."

The RBI today received one bid of Rs 9,500 crore in its one-day repo auction which the apex bank accepted at a cut-off rate of 6.50 per cent. Dealers said that the bid came from a large nationalised bank.

Government security prices went up in the morning on the back of RBI governor's statement but stabilised afterwards due to profit booking. A dealer with a private sector bank said, "The rally was arrested due to an auction rumour in the afternoon. However, the liquidity condition is still good and the sentiment is still positive."

Call rates are likely to remain in the 6.75-7 per cent range tomorrow on the backed by a slightly changed liquidity position. A dealer with a nationalised bank said, "The repo bids are quite high nowadays implying ample liquidity in the hands of lender banks and hence we expect overnight rates to remain below the bank rate." Government security prices are likely to move up by 10-15 paise in the initial hours of trading, but will stabilise after that due to profit booking, said the dealers.