Rbi Intervenes To Cool 3-Day Call

MONEY MARKET REPORT

The Reserve Bank of India (RBI) stepped in to buy bonds yesterday in a bid to cool call money rates.

Fears of runaway 3-day call money rates had gripped the market and therefore the apex bank had to take control. Security prices moved up and market dealers appear to be bullish once again over the short term future of the market.

In the morning, RBI governor told the press that there appeared to be a liquidity constraint in the market which the central bank would need to resolve immediately.

Incidentally, the liquidity constraint had occurred due to RBI's aggressiveness in pursuing open market operations since Tuesday. Although the amount of Rs 3,500 crore which had flowed out of the market was not much, sentiments were affected greatly which resulted in bond prices crashing.

 

Dealers said the apex bank was buying the zero coupon bond maturing on July 13 from the market at Rs 96.50 which translates into a yield of nearly 9 per cent. Reportedly, they have bought nearly Rs 500 crore of this bond.

Purchase of five treasury bills which were put on the OMO list on Thursday saw an amount of Rs 370 crore flowing into the market.

"Though amounts were meagre, sentiments have drastically changed as this shows that the central bank willingness to provide liquidity support to the market as and when needed," said a market dealer in a private sector bank.

Interest rates in the 3 day inter-bank call money market cooled to 12 per cent levels by the end of the day after opening between 15-20 per cent.

As liquidity support from the apex bank was announced, call money rates started sliding and eased out considerably by the end of the day.

The wholesale debt market of the National Stock Exchange (NSE) witnessed a volume of Rs 1,047 crore on account of 164 trades.

The 11.83 per cent 2014 gilt continued to be the market favourite as it saw a price appreciation of nearly a rupee during the day.

It was traded for Rs 140 crore at a weighted yield of 10.81 per cent.

The 12 per cent 2008 government security was also traded for Rs 140 crore, though at a weighted yield of 10.36 per cent.

Price of the security increased by just 5 paise during the day from Rs 108.90 to Rs 108.95.