Call rates drop to 8 per cent as demand for funds eases

MONEY MARKET ROUND-UP

The call money rate ended down on Thursday because demand for funds fell further towards the close of trade, prompting lenders to slash rates, dealers said.

The one-day call rate ended at 7.75-8.00 per cent compared with Wednesday’s close of 8.75-8.95 per cent. A sharp fall in CBLO (collateral borrowing and lending obligation) rates also put downward pressure on inter-bank overnight rate, dealers said.

“CBLO rates have fallen sharply. It looks like some inflows have come into the system,” said a dealer of a state-run bank. CBLO rates fell to a low of 2.50 per cent in late trade on Thursday and ended at a weighted average rate of 7.99 per cent.

 

According to dealers, some banks that had borrowed funds in excess of their requirements had stepped up lending in late trade, both in CBLO and call money market.

“Banks may have over-borrowed in the last few days, which they are deploying in the CBLO market. Mutual funds have not been lending much today,” said a fund manager at a mutual fund. Banks tend to increase borrowings to meet their mandated reserves in the first week of a Reporting Fortnight to avoid risk of high rates later. Nevertheless, banks continued to remain net borrowers from the Reserve Bank of India’s repo tender due to tight liquidity.

The central bank on Thursday infused Rs 15,000 crore through repo tender compared with Rs 13,000 crore on Wednesday.

G-sec: Upbeat trend

The government bond (G-sec) market rallied further on Thursday in the backdrop of the expectation that inflation may ease further for the third week in a row and on softer global crude oil prices.

The yield on the benchmark 8.24 per cent note due April 2018 fell by 9 basis points to 8.28 per cent, according to the central bank’s trading system. The price rose 0.61 per cent, or 61 paise to Rs 99.75. A basis point is 0.01 percentage point.

The comments of Suresh Tendulkar, the chairman of the Economic Advisory Council, also indicated that inflation seemed to have already peaked and there would be no major upside. A softer bias on global crude oil prices also aided the positive sentiment in the market.