Repo Cut Slashes Call, Gilts Appreciate

Call rates eased to close in the 6.75-6.90 per cent range today on the back of a cut in the repo rate by 25 basis points to 6.50 per cent. Government security prices, tracking the easy call rates went up by 40-45 paise at the long end of the market.

Call rates opened around 7-7.20 per cent in the morning. A primary dealer said, "Overnight rates were low since the morning as the liquidity situation was comfortable on the back of redemption and coupon payments of government security as well as accretion of bank deposits."

Overnight rates moved down further to close in around 6.75-6.90 per cent after the liquidity adjustment facility auction.

 

The chief dealer with a private sector bank said, "The reduction in the repo rate was the indication that the apex bank wants the short-term rates to be even lower and market responded to it positively."

The central bank today received a single bid of Rs 7,005 crore for its one-day repo auction. The apex bank, however, accepted only Rs 5 crore of the bid showing the intention of not putting strain on the market liquidity.

Government security prices, despite the concern over tomorrow's Rs 5,000 crore auction, rallied sharply at the longer end of the market due to the cut in the repo rate and low call rates. A dealer said, "The sentiment in the market had been positive since the liquidity comfort returned to the market last week. Today's cut in the repo rate gave it a further boost."

According to the dealers, prices at the longer end of the market went up by 40-45 paise, while the shorter end saw an increase of only 10-15 paise.

Call rates are likely to remain in the 6.75-7.25 per cent range tomorrow on the back of easy liquidity condition in the market. Government security prices are likely to move up marginally by 10-15 paise at the longer end on the back of soft overnight rates.