Rbi Remark Dents Gilts; Call Zips Up, Ends Down

Government security prices fell sharply today due to a statement made by an apex bank official that the central bank is not in a hurry to cut the bank rate. Call rates, which pierced the seven per cent mark in the early hours, came back to settle below the 6.50 per cent level.

Government security prices opened steady and rose marginally at the longer end of the market. It, however, started slipping once the RBI official's statement was made public. It closed around 75 paise lower than the yesterday close.

A dealer with a private sector bank said, "It is not the first time the central bank has made such a statement. It hurts the market sentiment everytime. There is no problem on the liquidity front. The trading was dull as many of the market participants stayed away on fiscal end consideration."

 

Call rates opened high and surged past the seven per cent mark soon. Dealers said that stray deals happened even at 7.25 per cent. There were no big lenders as nobody was interested in parting away with liquidity on the back of advance tax outflow. Some big lenders, however, appeared later and the demand also eased. Overnight rates closed around 6.40-6.60 per cent.

In the one-day repo auction, the RBI received two bids of Rs 1,085 crore. The central bank accepted both the bids at a cut-off rate of six per cent. There was no bid in the reverse repo auction.

Call rates are expected to hover in the 6.50-7.00 per cent range tomorrow. Money market dealers said that though a major chunk of advance tax is already paid, there will still be some strain on liquidity on that account. In the government security market, the impact of the RBI official's statement is unlikely to have a long-lasting impact. Dealers are expecting the prices to recover, but there will be profit-booking at the higher level as none of the players are interested in booking huge position before the fiscal end.