Reverse Repo Eases Overnighjts To 8.5-8.70%

Call money rates dipped from an intra-day high of nine per cent to close in the range of 8.50 per cent to 8.70 per cent, while government security prices, though went up in the morning, came down to close at Saturday's closing level due to the heavy profit-booking.

Call money rates opened high in the morning at nine per cent, but came down gradually after the reverse repo auction. A primary dealer said, "call money rates though were softer as compared to Friday, remained around the nine per cent level in the morning as the liquidity condition remained strained. The RBI's reverse repo auction brought some relief to the market which was reflected in the dip of overnight rate."

 

The apex bank today received 25 bids of Rs 3,365 crore in the reverse repo auction, out of which it accepted 17 bids of Rs 3,105 crore. The cut-off rate for the auction was pegged at 8.75 per cent. The weighted average of the interest rates of the bids accepted were at 8.7539 per cent. The central bank, however, did not receive any bid for its one day repo auction.

Government security prices went up sharply in the morning hours on the back of a cash reserve ratio (CRR) cut announcement. According to the dealers, the rise in prices was in the range of 25-40 paise at the medium and longer-end of the market. The gain, however, was not sustained because of heavy profit-booking.

A dealer with a private sector bank said: "The banks and the primary dealers are already overstuffed with the government security and hence any upward movement in prices attracts heavy profit-booking. Today's phenomenon reflect the same."

Call money rates are likely to remain in the range of 8.50 per cent to nine per cent tomorrow as the dealers see no sign of improvement in the liquidity. The treasury head of a private sector bank said: "Call rates are likely to open around nine per cent, but are expected to come down after the reverse repo inflow."

Government security prices are likely to replicate today's phenomenon tomorrow. A dealer with a nationalised bank said: "The sentiment in the market is good and players are expecting a cut in the bank rate to come shortly. However, profit-booking will keep the prices stable."