Spread between call, CBLO rates narrows

The spread between call money rate and CBLO has narrowed to 7 basis points on Tuesday from 36 bps on Monday as supply was less in the collateralised market compared with call market.

Call rate was slightly up on Tuesday at around 7.75 per cent, while CBLOs ended sharply up at 7.35 per cent. One-day call rate ended at 7.75-7.90 per cent, compared with 7.20-7.50 per cent on Monday.

CBLOs ended at a weighted average rate of 6.62 per cent. “Mutual funds are facing redemption pressure. Also, the market is still not very comfortable on liquidity and is waiting for the full amount of liquidity to come into the system after which the spread (between call and CBLO) will be restored,” said a dealer with a private sector bank.

Bond prices down

Government bond prices ended down on Tuesday as most traders sold to make room for fresh supply of gilts through auctions scheduled on Friday amid uncertainty about the likely response at Thursday’s repurchase tenders of gilts sold under the Market Stabilisation Scheme, dealers said.

The most traded 8.24 per cent, 2018 gilt settled at Rs 104.05 or 7.6306 per cent yield-to-maturity compared with Rs 104.54 or 7.5592 per cent Monday’s close.

The usual lenders in the CBLO market are mutual funds, some companies and state-owned banks.

Given the cash crunch mutual funds and companies are facing, the supply in the CBLO market has dried up to some extent.

The call money market was steady for most of the day.

“A few banks may have borrowed desperately at 7.90 per cent on Tuesday, otherwise call rate remained within 7.50 per cent as liquidity is comfortable in the system,” said a dealer with a state-owned bank.

At 4 pm, the weighted average call rate on Tuesday is 7.42 pe rcent, as shown on the website of Clearing Corporation of India.

Though liquidity has improved following the cut in cash reserve ratio, the system is still under deficit as the full impact of the liquidity infusing steps will be visible from the next week, dealers said.

Reserve Bank of India released Rs 20,000 crore by cutting banks’ cash reserve ratio by 50 bps retrospectively from October 25.

RBI has cut CRR 100 basis points in two stages of 50-bps each. The second cut of 50 bps will come into effect on Novemebr 8.

Demand also remained subdued on Tuesday as banks have covered much of the reserve needs, as is typical, in the first week of the Reporting Fortnight, leading to less demand in the second week.

on Tuesday, the call market registered a volume of Rs 1,501.5 crore, down from Rs 1,832.1 crore Monday.