Huge Inflows Shave Overnight Rates

MONEY MARKET REPORT

Call money rates fell yesterday due to large inflows, while security prices firmed up ahead of the results of the Rs 5,000 crore auction yesterday. The auction devolved to the extent of Rs 4,886 crore on the central bank and the cut-off yield set for the auction was 10.95 per cent.

The total volume of bids fell well short of the notified amount of Rs 5,000 crore indicating the lack of appetite in the market for papers of longer maturities.

Call rates opened at levels of 7.75 per cent and eased over the day to levels of 7 per cent with most deals being done in a range of 7.4-7.5 per cent. The easing of call rates was due to a large inflow on account of the redemption of a dated government security and due to the fact that most players had already covered their exposures.

 

The rates are expected to stay in a range of 7.5 - 8 per cent for today. Gilt prices ahead of the auction moved up by about 10-15 paise mainly in the short to medium range tenors ahead of the Rs 5000 crore auction. The big inflows were the main reason behind the rally in prices after the bearishness last week in the wake of the exchange rate volatility.

However, they are expected to stay range bound over the next few days as the market absorbs the news of the heavy devolvement taken by the central bank. "The auction results are not likely to lift sentiment in the market. Most dealers are in a heavily overbought position and any rally in prices will be used to offload securities," said a dealer.