Calls Slip To 0.5% As Banks Sit On Funds

Dealers said the low rates in the market were in line with the market's expectations, particularly when they had seen a more pronounced decline on Wednesday.

Many banks were flushed with funds, as a result of which, the rates ruled low. However, to the surprise of bankers, the supply of funds in the system was less than what was anticipated by them.

In the securities market, several banks were reported to be parking funds in short-term securities. These included the 91-day paper and the 14-day `on tap', which attracted considerable interest. Banks were believed to be investing heavily in the 91-day T-bills. When rates in the call market are at a low, banks lap up this paper to avail of the arbitrage opportunities between the call market and this short-term paper.

 

Another reason cited for the decline in calls was that many banks had reportedly overcovered their position in the last fortnight. This, because these banks expected an outflow of funds on account of the subscription to the 10-year paper on August 26. The subscription, however, turned out to be low, leaving ample money in the system..

Another fall-out of the low call rates was the increase in the prices of Government of India securities. The 13.5-per cent 1997 gilt was traded at a price of Rs 100.40, while the 13.62-per cent 1998 paper was dealt at Rs 100.53. Today being a reporting Friday, the overnight money market is likely to be at a low ebb. This is the case because banks do not prefer to borrow money on a reporting Friday as they have to maintain an additional cash reserve ratio on their net demand and time liabilities.