Calls Crash To One Per Cent

MONEY MARKET REPORT

The interest rates in the inter-bank overnight money market crashed to one per cent. Call rates which had opened at around nine per cent came down to 1.5 per cent during the course of the day.

The reporting Friday-bug does not seem to have left the market. Since banks had covered their reserve requirements, there were no borrowers in the market. If banks borrow from the financial institutions then the reserve requirements are still mandatory. Hence with no borrowers, these institutions brought down the rates. To overcome this problem the FIs are reportedly routing their deals through primary dealers.

There was no activity in the inter-bank term money market. However, there were three-day deals reported at rates ranging between six and eight per cent.

There was hardly any trading in the treasury bills segment. Money market dealers said the call rates will move up once again today. Since banks always take position in treasury bills based on the prevailing call rates, the fact that calls were low yesterday did not trigger any activity. Treasury bills maturing in April next year were quoted in the band of 9.20 per cent to 9.40 per cent.

Money market dealers described the activity in the securities market as very calm. The focus of attention was the auction of five-year central government paper, scheduled for the evening. There was some buying pressure and the yields moved down slightly.

The 13.05 per cent 2007 state government paper was trading at par or at a premium of 10 paise. The 10-year central government paper was trading at a premium of 40 to 50 paise. Expectations are that the yields will stabilize in the coming week. The cut-off in the auction of five-year paper will be providing a benchmark to the market.