Call Pierces Repo Floor, Gilts March Continues

Excess liquidity in the banking system helped call money rates to close below the repo rate of 6.50 per cent today, while the government security prices were up by more than a rupee at the medium and long end of the market.

The call rates opened in the range of 6.60 per cent to 6.75 per cent, and declined gradually.

Overnight rates closed in the range of 6.30 per cent to 6.45 per cent. According to the money market dealers, most of the deals were struck around the 6.55 per cent mark.

A dealer with a private sector bank, said: "Demand was very low in the call market today as most of the banks have already covered their cash reserve requirement." He said, foreign banks were the main borrowers in the overnight market, while the state-run banks were the prime lenders.

 

In the government security market, prices continued to rally at the medium and long end of the market, while the short end remained steady at yesterday's level. A dealer with a foreign bank said: "The liquidity was fairly good in the system. Though the market was expecting the Reserve Bank of India (RBI) to conduct open market sale of Rs 4,000 crore of government privately placed with it in the last week, it did not hamper the rally."

The RBI today received seven bids of Rs 4,805 crore in the one-day repo auction. The central bank accepted all the bids at a cut-off rate of 6.50 per cent. There was no bid in the reverse repo auction.

Call rates are expected to hover around the repo rate of 6.50 per cent tomorrow. A dealer with a nationalised bank said: "As the reporting Friday is approaching the end, demand for overnight money will be even lower. Hence the call rates will remain soft."

In the government security market, prices should rally by another 35-40 paise tomorrow. However, if the RBI sells government paper through the open market window, the rally will be stemmed a bit.