Repo Cut Hopes Prop Gilts, Call Ends Lower

Expectations of a repo rate cut today pushed up government security prices in the range of Re 1 to Rs 2 across maturities. Call money rates which stayed higher in the opening hours, settled at 6.60 per cent to 6.80 per cent at the end of the day.

In the government security market, sentiment was positive since morning as the money market participants have been expecting the repo rate to be cut. The expectation was strengthened as one of the news agency reported that a senior official of the Reserve Bank of India (RBI) said the repo rate is to be cut 'very soon'.

 

Said a dealer with a foreign bank: "The markets have been expecting the repo rate cut since the Budget announcement of a 50 basis points cut in the small savings rate. At one point of time, as the RBI delayed the announcement of the repo result, we thought that it would happen today."

The RBI today received four bids of Rs 6,150 crore in the one-day repo auction. The apex bank accepted all the bids at a cut-off rate of 6.50 per cent. There was no bid in the one-day reverse repo auction.

In the call money market, rates were high in the range of 7 per cent to 7.25 per cent. A few deals were even reported at the 7.50 levels. Money market dealers said, since Friday, there was very little trading in the overnight market. Some of the banks rushed for the liquidity today to cover the requirement of the last four days as well. Moreover, the state-run banks -- the usual lenders in the call money market -- were absent in the beginning of the day.

Government security prices are expected to go up further tomorrow. Said a dealer: "The impact of the repo cut was mostly discounted. However, we feel it is due for further rise." In the call money market, if the repo rate cut is announced, the overnight rates will go down. If the RBI refrains from cutting the rate, overnight rates will hover around the 6.50 per cent level.