Auction Keeps Call, Gilts Markets Volatile

Both call money and government securities markets were volatile today due to the Rs 8,000 crore twin-auction.

While the overnight rates ended at 7.50 per cent, the prices of government securities fell by 25-30 paise across all maturities.

Call rates opened in the range of 7.60-7.65 per cent and went up steadily to touch 7.75 per cent before closing at 7.50 per cent.

A dealer said, "Liquidity was under strain as the state-run banks refused to lend at lower rates just before the auction. This had pushed up the overnight rates. However, after the auction, the liquidity eased and the rates came down."

 

The Reserve Bank of India did not receive any bids for one-day repo and reverse repo auction.

Dealers said market participants were not ready to part with their liquidity before the auction. In the government securities market, prices dipped sharply because of higher call rates.

The treasury head of a private sector bank said, "The prices of securities fell mainly because of the auction. Market players were a bit panicked over the Rs 6,000 crore of 14-year paper."

Another dealer with a private sector bank said, "The finance minister has made a statement that rate-cuts were not successful always. The market has read this as negation of any possible rate-cut in the near future. This also contributed the fall in the prices."

Call money rates are likely to remain around 7.50 per cent tomorrow because of tightening of liquidity. The prices of government securities will remain stable with a downward bias.

A dealer with a nationalised bank said, "There will be liquidity shortage for the next couple of days. However, as we expect the auction money to come back to the system through government expenditure by the end of the week, the call rates will again be soft during next week."