Gilts Market Overheated, Says Reddy

The Reserve Bank of India (RBI) yesterday warned that the money markets, especially the segment for long-dated securities, were overheated and that some of the players were showing `unwarranted' enthusiasm.

"There has been some more-than-necessary optimism bordering on speculation," RBI deputy governor Y V Reddy told newsmen on the sidelines of a seminar on `fiscal responsibility of the government' in the Capital yesterday.

Pressed further, Reddy denied that the RBI was sending any signals with respect to liquidity. "There is no such signal. As a central bank, we keep a watch on liquidity. But the circumstances certainly suggest that there is excessive enthusiasm," he added. The central bank had on Monday, signalled a similar sentiment when it offered for sale as part of its open market operations, long dated government paper at rates slightly below that quoted on the markets. This was because several players have, taking advantage of the prevailing low rates in the call money markets, speculated in long term securities in anticipation of an interest rate cut. Asked to comment on suggestions that bank credit was flowing into the capital markets, the deputy governor said, "Just as Sebi is always watching the capital markets, we too are doing the same. The cautionary note from the RBI governor is part of a general approach and not that any specific problem has been detected."