Gujarat Attacks Clip Gilts, Call Grooved

Government security prices slipped by around 30 paise Wednesday amid volatile trade due to political concerns. Call rates remained in the 6.60-6.90 per cent range due to the good liquidity situation.

Government security prices opened at yesterday's closing levels. The prices, however, started coming down due to profit-booking following the reports on the Sabarmati Express massacre. Prices were down by 80 paise till afternoon and recovered later on rumours that small saving rates may be cut by 1-1.50 percentage points.

A dealer with a foreign bank said: "The sentiment was little bit shaky in the morning because of the arson in the Sabarmati Express as it can lead to political instability. However, the strong rumour of a more than one percentage point cut pushed up the prices at the long end of the market."

The Reserve Bank of India today received four bids worth Rs 670 crore at the one-day repo auction. The apex bank accepted all the bids at a cut-off rate of 6.50 per cent. There were no bids at the one-day reverse repo auction.

In the call money market, as the liquidity condition remained comfortable, rates continued to hover around the repo rate of 6.50 per cent. Overnight rates opened in the range of 6.60-6.75 per cent and closed in the 6.75-6.90 per cent band.

Government security prices are expected to move in accordance with the Budget announcement. Money market dealers are expecting the gilts market to open on a cautious note. If the Union finance minister cuts the small savings rates, the prices are expected to rally, dealers said.

Call rates, however, should hover around 6.50-7 per cent irrespective of the Budget announcement.

Dealers said that the small savings rate cut may affect longer-term instruments such as government securities, but call rates can move only if the repo rate is reduced.