Liquidity Glut Grooves Call, Gilts Up

Call rates remained in the 6.65-6.85 per cent range today on the back of the easy liquidity situation. Government security prices went up by 10-15 paise at the medium-to- long end as buying interest picked up.

Call rates opened in the 6.80-6.85 per cent band and came down a bit during the day to close in the 6.65-6.75 per cent region. A dealer with a private sector bank said: "All banks are flushed with liquidity and hence demand was thin even if it was the beginning of the new reporting fortnight."

Dealers said most of the deals were done in the 6.70-6.75 per cent band. The ample liquidity situation was reflected in today's repo auction. The Reserve Bank of India (RBI) received two bids worth Rs 12,225 crore at its one-day repo auction which the apex bank accepted at a cut-off rate of 6.50 per cent. The central bank did not receive any bids at the repo auctions last week.

Prices of government securities slipped in the initial hours as a section of the market expected an auction announcement following the Rs 8,500 crore worth redemption of the 11.75 per cent government security maturing in 2001 on Saturday.

Prices, however, improved later to close 10-15 paise higher than Saturday's ending level at the long end. The treasury head at a private sector bank said, "This was purely a liquidity-driven rally. The most interesting feature of the rally was that even the prices of illiquid papers went up today."

Call rates are expected to remain in the 6.60-6.75 per cent band tomorrow, while government security prices may move up by another 10-15 paise.

A dealer with a nationalised bank said, "The repo auction outflows are an indication of the liquidity condition. As it was high on Monday, it seems that the market has enough liquidity to support further rise in government security prices."