Governments security market turned volatile today but closed little changed as compared with yesterday's closing. Call rates closed around the refinance rate of 6.50 per cent but touched a high of nine per cent during the day.
Call rates opened in the 7.50-8.00 per cent range and within a couple of hours it touched nine per cent. According to dealers, undercoverage of cash reserve requirement by a host of banks created excess demand. Overnight rates, however, came down during the day as the demand also eased.
High call rates created havoc for the government security market as well. Prices of the government paper which had been going down during the week, fell by more than a rupee in the morning. But with the dip in call rates, prices also recovered and closed around yesterday's level.
A dealer with a foreign bank said, "The fall in the government security prices did not last long. The sentiment is still positive and there is no strain on the liquidity."
The Reserve Bank of India today received three bids amounting to Rs 140 crore for its three-day repo auction. None of the bids were accept. A dealer with a private sector bank said, "The apex bank did not want any outflow today when call rates rose and that is why no bid in the repo auction was accepted."
The call and government security market will remain closed tomorrow due to public holiday. During the next week the market will largely be influenced by the Budget. Dealers said if the small savings rate are cut prices will rally, otherwise there can be a downward movement. Before the Budget there will be cautious trading in the market. Call rates should continue to be in the range of 6.50-7.00 per cent as the liquidity will remain good.
