Omo Fuels Call Up, Easy Liquidity Slashes Gilts

Call rates strengthened today and followed the 7.15-7.60 per cent range on the back of heavy open market operation (OMO) by the Reserve Bank of India (RBI). The government security prices fell by 25-30 paise at the longer end as the liquidity position deteriorated.

Call rates opened around 7.15-7.25 per cent, went up sharply during the day to close around 7.55-7.60 per cent.

A primary dealer said, "The liquidity condition was pretty tight as most of the big lenders seemed to put their money for the securities placed in the open market window."

The RBI till yesterday mopped up Rs 1,600 crore from the market through 11.50 percent 2011 and 10.25 percent 2021 paper placed in the open market window.

Tight liquidity was reflected by the repo auction conducted by the apex bank which did not receive any bid at the auction on Thursday compared with Rs 6,000 crore bid received on Wednesday.

Some of the players, however, turned to reverse repo window for the liquidity help. The central bank injected Rs 200 crore through one-day reverse repo auction, for the first time since May 23.

Government security prices, on the back of higher call and tight liquidity condition, fell at the longer end.

A dealer said, "Liquidity situation earlier had improved on the back of coupon payments and redemptions. The open market operation has made up for it and as the liquidity condition turned bad again, prices dipped sharply."

A dealer with a private sector bank said that the market is concerned over the advance tax outflow that will start from June 15, and that also pushed down the prices.

Call rates are likely to be in the 7.25-7.75 per cent range as the dealers are expecting that the liquidity situation may suffer further on account of the ongoing open market sale.

Government security prices are likely to fall by 20-25 paise at the longer end on the back of tighter liquidity condition.