Overnight Rates Easy, Long Gilts Up

Call money rates today ruled easy in the 7.00-7.10 per cent range on the back of ample liquidity and closed at this level compared with Wednesday's ending of 6.95-7.10 per cent.

Government securities at the long end edged up by 30 to 50 paise after the Union finance minister Yashwant Sinha said in New Delhi that the government wants to create a situation where interest rates can come down and that it will aim to keep within its fiscal deficit target.

"The market was bullish today riding mainly on the Sinha's talk on soft interest rates and fiscal deficit being kept under control. The big lenders were quoting at lower levels and carry-trades took place in the market. With the ways and means advances (WMA) under control the RBI is unlikely to announce an auction for another one week," a dealer with a private sector bank said.

At the repo and reverse repo auction held by the RBI under the liquidity adjustment facility (LAF) no bids were received. Net inflows into the banking system amounted to Rs 218 crore.

That the liquidity is comfortable in the market is evidenced by the fact that the refinance outstanding with the Reserve Bank came down to Rs 3,536 crore on Wednesday as against Rs 5,787 crore on Tuesday.

There was lot of bidding interest in the benchmark 11.50 per cent 2011 government paper, which in the morning was quoted higher at Rs 114.80 (Rs 114.26 yesterday), edged lower to Rs 114.70 in noon trades before rising to Rs 115.20 on the back of the finance minister's positive comments on interest rates.

The other benchmark papers, the 11.03 per cent 2012 paper was quoted at Rs 111.10 as against Rs 110.65 yesterday while the 11.40 per cent 2008 paper was quoted at Rs 114.73 (Rs 114.29).

Call money is expected to hover in the 7.00-7.10 per cent range tomorrow supported by easy liquidity while the government securities prices should remain and see some profit bookings at higher levels.