Govt Crisis Buzz Stabs Gilts, Auction Fuels Call

Call rates stayed high in the 7-7.25 per cent range on the eve of Rs 5,000 crore of 10-year paper auction, while the government security prices crashed by 35-50 paise at the medium and longer end of the market.

Call rates opened high in the morning around 7.15-7.25 per cent, but softened a bit later to close around 7-10 per cent.

A dealer with a private sector bank said, "There was a short supply condition in the morning as lenders set aside their liquidity for the auction. This pushed up overnights a bit higher."

The Reserve Bank of India (RBI) did not receive any bid for its one-day repo as well as reverse repo auctions.

A dealer said, "Nobody was interested in parting with liquidity before the auction and, hence, there was no bid in the liquidity adjustment facility auction."

Government security prices remained steady during the initial hours of the day, but crashed in the afternoon hours.

A dealer with a nationalised bank said, "There was some selling by a few financial institution in the late hours which sent the prices on a southward spiral."

The treasury head of a private sector bank said, "A news by some daily about the possibility of government's fall due to the Unit Trust of India crisis affected the sentiment in the market resulting in a fall in government security prices." The fall, however, was mainly at the medium and long end of the market, dealers said.

Call rates are expected to remain in the 6.90-7.15 per cent range tomorrow with liquidity position remaining comfortable while the gilts prices are likely to go up by 10-15 paise at the short and medium end of the market.