Gilts Soar On Auction Eve, Call Hovers Over Repo

Call rates continued below seven per cent today as there was little demand in the market. Government security prices rallied by more than a rupee at the medium and long end despite the Rs 6,000 crore worth government paper auction tomorrow.

Call rates opened in the 6.65-6.85 per cent band and came down to close around 6.60-6.70 per cent.

A dealer with a new private sector bank said: "The call market remained unchanged. Though there is ample liquidity, takers are few. Call rates continued to hover in the same range as it has been for the past one-and-a-half months."

The excess liquidity in the market was reflected in the repo outflows as well. The Reserve Bank of India (RBI) today received two bids of Rs 12,070 crore at its one-day repo auction. The central bank accepted both the bids at a cut-off rate of 6.50 per cent. There was no bids at the one-day reverse repo auction.

 

In the government securities market prices continued to rally. However, the surge in prices was mainly concentrated at the medium and long end, while the prices of short-term securities remained almost unchanged. The 10.71 per cent paper maturing in 2016 was the mostly traded paper and the price of the paper jumped by around 150 paise during the day.

According to dealers, the main source of liquidity is the accretion of foreign exchange reserves of the country which is on the rise.

A primary dealer said, "The supply of liquidity is one factor which is pushing up gilt prices. The universal banking plan of financial institutions and the consequent security buying by them to comply with the RBI's statutory liquidity ratio norm also pushed up prices."

Call rates are expected to remain soft in the 6.50-6.75 per cent tomorrow, while government security prices may go up by 35-40 paise at the medium and long end.