MONEY MARKET REPORT
Security prices see-sawed yesterday before falling back to Saturday's closing levels by the end of the day. In the morning gilts went up by 50-80 paise at the long end before falling by a similar amount in the afternoon session.
Interest rate in the overnight interbank call money market opened at around 10 per cent and stayed steady at this level for most of the day. Towards the close, call money rates fell to 9.3-9.5 per cent as demand for funds tapered off.
Dealers said this sort of a situation was likely to continue with overnight call rates remaining steady at around 10 per cent and security prices being volatile. In the last month itself, security yields have fallen by 100 basis points at the long end.
"Once Rs 5,000 crore which flowed out of the system due to the auction returns to the system, call money rates should stabilise at around 8-8.5 per cent levels. If a bank rate cut is announced in the budget itself, overnight rates would see a further fall," said a money market dealer.
Rumours of a bank rate and cash reserve ratio cut has already resulted in the market discounting these factors in advance. "In fact, now some bankers have started expecting a 2 per cent bank rate cut which is highly unlikely under such circumstances," said a debt market dealer in a nationalised bank.
The Reserve Bank of India (RBI) has put the 12.32 per cent 2011 government security on its open market operations window at a sale price of Rs 112.75. This is in line with the current price of the security in the secondary market.
With security prices being as volatile as they are, there is a growing fear in the market over the consequences of a reversal in price movement. "This could very much happen if the budget does not meet the expectations of the market. Prices of securities are reaching new highs everyday and the downside could be expected to be as fast as the rise has been," said a debt market dealer.
Dealers are of the opinion that the growth in prices needs to be checked as the market has reached uncomfortable levels. Many dealers would be relieved to see falling prices at this stage. "A huge bubble appears to have built up in the current scenario," said a money market dealer.
The wholesale debt market of the National Stock Exchange (NSE) witnessed a trading volume of Rs 2,430.10 crore on account of 362 trades. The most traded stock on the exchange was the 11.83 per cent 2014 gilt for Rs 835 crore at a weighted yield of 10.5 per cent.
