Stretched Liquidity Fuels Call, Gilts Appreciate

Call rates zoomed to 15 per cent level today as the auction outflow created temporary liquidity strain. Government security prices, however, went up on the back of good subscription in yesterday's twin auction of Rs 8,000 crore.

Call rates today opened in the 8-8.50 per cent range in the morning, but continued to go up during the day. Dealers said that though most of the deals were done at rates below 11 per cent, few deals were done at 14-15 per cent levels as well.

Said a dealer, "Liquidity was under strain as many of the banks have not covered their position properly. They rushed for liquidity cover, while the big lenders were quoting high. This caused call rates to go over the 10 per cent mark." Overnight rates closed around 10-11 per cent.

 

The Reserve Bank of India (RBI) today received no bid for its one-day repo auction, but received 30 bids of Rs 4,270 crore in the one-day reverse repo auction. The central bank accepted 26 bids of Rs 4,240 crore at a cut-off rate of 8.50 per cent. The weighted average yields of bids accepted was 8.51 per cent.

A dealer with a private sector bank said, "As the lenders were not ready to lend at a lower rate, borrowers opted for the RBI money available at a lower rate."

Government security prices were up by 25-30 paise in the morning, but slipped a bit after call rates crossed the 10 per cent level. Prices closed 10-15 paise higher than yesterday's closing level. Dealers said that high call rates did not have much impact on the gilts market as the sentiment improved after good subscription received at the twin auction.

Call rates are likely to remain high around the 10 per cent level tomorrow. The treasury head of a private sector bank said, "Overnight rates are likely to remain high till the end of this fortnight on the back of demand pressure."

Government security prices, however, are likely to remain stable tomorrow with prices moving in a 20-25 paise range around the current levels. A dealer with a nationalised bank said, "The liquidity scenario is likely to improve after the reporting Friday. Moreover, everybody is expecting a bank rate cut too. In a situation like this, there should not be any selling pressure."