Us Fed Cut Buzz Lifts Gilts, Overnight Rates Cool

Call money rates remained in the narrow range of 6.90 per cent to 7.10 per cent today, while the government security prices increased by 40-50 paise at the medium and longer-end of the market on the back of ample liquidity in the system and the expectation of a Fed rate cut.

A primary dealer said, "banks and primary dealers have already covered their position and hence not much demand is left. This left the overnight rates to hover around the same range as yesterday."

Dealers said the deposit mobilisation, redemption inflow and the return of advance tax outflow have kept the liquidity easy in the system. The ample liquidity in the system was reflected as the there was no bid in one-day reverse repo auction.

The Reserve Bank of India (RBI), however, received a single bid of Rs 5,650 crore in its one-day repo auction, which the apex bank accepted at the cut-off rate of 6.50 per cent. Dealers said the bid was from a large public sector bank.

Government security prices continued its rally with the help of ample liquidity. Dealers said the prices went up by 40-50 paise at the medium to long-end of the market. A dealer with a private sector bank said, "the market is flooded with liquidity. Moreover, everybody is expecting a Fed rate cut in tomorrow's Federal Open Market Committee meet which will put pressure on RBI to cut the benchmark bank rate. This also helped the sentiment to improve further."

Call rates are likely to hover around the seven per cent level tomorrow on the back of thinner demand on the eve of closing of the reporting fortnight. Government security prices are likely to move up by another 25-30 paise at the medium and longer-end of the market on the back of a soft call money rate and the expectation of a Fed rate cut on Wednesday.