Call Crawls Up, Reddyspeak Socks Gilts

Call rates inched up to remain in the 6.80-7 per cent range today while the government security prices took a reverse turn today as the Reserve Bank of India (RBI) ruled out any bank rate cut in the near future and conducted auction of Rs 5,000 crore of 12.69 per cent 2004 government paper from its portfolio. Dealers said that prices at the long end increased by more than a rupee and 70-80 paise at the medium term segment of the market.

Call rates opened around 6.80-6.90 per cent in the morning, but went up further to close around 6.95-7 per cent.

 

A dealer with a private sector bank said, "With the announcement of auction through open market window, market is expecting the apex bank to tighten the liquidity. This has weakened the sentiment causing overnight rates to move up." Dealers said that the rates would have increased more but for a very thin demand on the eve of reporting Friday.

The RBI today did not receive any bid for its three-day repo auction. Dealers said as the liquidity is likely to be tightened none of the players are interested in bidding in the auction.

Government security prices fell sharply today because of Rs 5,000 crore of auction. A dealer said, "It seems that the central bank feels that there should be some correction in the government bond prices which rose heavily in the past one and a half months and, hence, is sucking out liquidity from the market. Moreover, as the RBI repeatedly said that it will not follow the Fed rate cut decision, there may be tightening of liquidity in the near future. This lead the prices to fall sharply."

Call rates are expected to remain in the vicinity of 6.70-7 per cent because of the auction outflow though the demand for overnight money will be very thin on reporting Friday. Government security prices are expected to go down by 25-30 paise across all maturities on the same ground.