Reverse Repo Reins In Call, Gilts Nose Up 25-30 P

Government security prices went up by 25-30 paise compared with yesterday's close, amid volatile trade fuelled by the attack on Parliament house. Call money rates, though opened higher, came down as the Reserve Bank of India (RBI) infused liquidity through the reverse repo auction.

The government security market opened on a positive note as the market participants were expecting the RBI to cut the repo and reverse repo rate following the US Fed's decision of reducing the fund rate. The party, however, did not last long as there was panic selling after the news of a terrorist attack on Parliament came in. Prices recovered in the afternoon hours on the back of ample liquidity.

 

Said a primary dealer: "It was a sentiment driven see-saw movement in the government security market. Liquidity position was good and that pushed up the prices once again after a sharp fall for a couple of hours."

In the call money market, the rates were firm in the morning at 8.50 per cent to 9.00 per cent. Dealers said there was huge demand from a group of foreign banks, but the lenders were not ready to lend.

However, the RBI came to help the market and lent Rs 1,190 crore through the reverse repo auction at a cut-off rate of 8.50 per cent. Moreover, some of the big lenders lent money after the reverse repo auction, which also helped the overnight rates to ease. Overnight rates closed in the range of 6.75 per cent to seven per cent.

A dealer with a private sector bank said: "Call money rates were high in the morning as some of the banks did not cover the cash reserve requirement fully and rushed for the liquidity. However, the RBI supplied enough liquidity to bridge the temporary mismatch of liquidity in the overnight market."

Call money rates should remain high in the range of seven per cent to eight per cent tomorrow. In the government security market, prices will remain stable with an upward bias on the back of good liquidity. However, there is likelihood of a bit of profit-booking if the prices go up too much.