Gilts Slump On Army Chiefs Comments

Government security prices dipped by 20-25 paise today at the long end of the market due to the army chief's comments on India-Pakistan relation and the volatile rupee market despite good liquidity condition.

Call rates stayed around the refinance rate of 6.50 per cent on the reporting Friday. Government security prices opened almost at yesterday's closing level and dipped a bit later as the rupee was weak since the beginning of the day.

Good liquidity condition propped gilt prices, but fell in the afternoon as the army chief described the border situation as 'serious'.

A primary dealer said: "The government security market was volatile today. It could have closed at a higher level, but for the statement of the army chief."

There was no demand for call money. Call rates opened in the 6.40-6.60 per cent range and stayed there for most part of the day. Later, it fell sharply and some deals were reported even below five per cent.

A dealer with a private sector bank said: "There were no takers for overnight money as most of the banks have already covered their cash reserve ratio requirements."

As the demand was less for overnight money, there was huge biddings at the one-day repo auction. The Reserve Bank of India received nine bids worth Rs 7,040 crore at the one-day repo auction. All the bids were accepted at a cut-off rate of 6.50 per cent.

Sentiment in the government security market will remain weak tomorrow. Money market dealers are expecting trading to remain thin and prices to drop by 10-15 paise at the longer end.

Call rates are likely to be in the 6.75-7.10 per cent range tomorrow as demand will be higher on the first day of the new reporting fortnight.