Call Rates Rule Around 10 Per Cent

MONEY MARKET REPORT

The interest rates in the inter-bank overnight money market ruled in the band of 9 to 10 per cent subsequent to the government mopping up Rs 4685.86 crore by selling the 12.59 per cent 2004 on tap day before yesterday.

RBI offering refinance facility at 10 per cent call is not expected to go beyond this level. Banks and primary dealers will opt for the refinance facility the moment the call rates tend towards 10 per cent. In fact a couple of banks are reported to have already availed of refinance facility.

Some believe the appropriate level for the call rates is around 9 per cent. Their logic is as follows: By definition the Bank Rate which is an indicator of short term liquidity is a short term rate, the rate at which the RBI provides accommodation by discount eligible bills. Now it was an anomaly when the Bank Rate was at 11 per cent and the call was at less than five per cent. The RBI should have pushed the call rates up closer to the Bank Rate by providing higher rates at the repos auction. Their criticism is that RBI did not do this.

 

In tune with the expectations the activity in the securities market was concentrated around the 12.59 per cent 2004 which was traded at an yield of 12.53 per cent.