Funds Blip Keeps Overnight Rates Tight

MONEY MARKET REPORT

The upward trend in call money rates continued yesterday due to temporary shortfalls in liquidity and rush by banks to cover ahead of reporting Friday. Today being a holiday also added to the fund crunch in the market.

Because of the tightness in call rates, security prices were traded in a fairly narrow range for the day.

Overnight rates opened at nine per cent levels and were traded for most of the day above the nine per cent levels.

The call money rates remained tight because of the large outflow from the market on account of the government securities auction on Tuesday.

 

Dealers also say that the 65 per cent requirement for maintenance of daily cash reserve ratio balances has also led to a situation where banks are trying to cover at the last minute. When the RBI had reduced the daily requirements from a level of 85 per cent to 65 per cent, market participants had felt that this could lead to volatility in the call money rates.

"The normal lenders were lending at adequate levels but were bidding up the rates," said a dealer with a private bank.

Security prices, as a result of the tightness in the call rates, remained range-bound with low levels of turnover seen in the market. Prices moved within a range of 5-7 paise in the short- to medium-term maturities, while in the longer end of the market, prices dipped by up to five paise.