Rbi Liquidity Assurance Calms Call, Gilts Volatile

Call rates were traded in the 7.25-7.75 per cent range today while the government security prices went up by a rupee at the medium and long end of the market as the Reserve Bank of India (RBI) decided to infuse liquidity via open market purchase of four government papers.

Call rates today opened higher around 7.25-7.50 per cent in the morning. The rates went up to touch an intra-day high of 7.75 per cent. The rates, however, came down during the day as the State Bank of India (SBI) pumped in liquidity.

Said a dealer with a private sector bank, "There was panic in the market as the rupee continued to fall today morning. However, the support from the SBI and the RBI announcement of giving liquidity support helped the overnight rates to come down."

The Reserve Bank of India (RBI) today received no bid for its one-day repo and reverse repo auction. Dealers across the board said that the banks were not ready to part away with liquidity as they were not well-covered for the fortnight.

Government security prices staged a very sharp fall in the morning on the back of a very volatile forex market. The RBI decision to open an open market purchase window, however, helped the sentiment to improve. Prices fell by more than Rs 2 in the morning at the medium and long end of the market, but recovered more than Rs 3 after the apex bank announced the decision.

Said a dealer with a private sector bank, "It (the RBI announcement) was a psychological boost more than liquidity support. We are looking at tomorrow's auction as it will set the benchmark for government paper with similar maturity."

Call rates are likely to remain in the 7-7.50 per cent range tomorrow as the liquidity condition will be eased following the infusion of liquidity following open market purchase by the central bank. Government security prices are expected to go up by another 25-30 paise at the medium and long end of the market.