Tax Outflows Drive Up Call Rates To 11%

Dealers ascribed the tightening in rates to the advance tax outflows, the estimates of which varied between Rs 4,000 and Rs 5,000 crore. The trend of high rates could persist for some time as banks expect an outflow on account of the new six-year paper. However, the issue, which is for an aggregate amount of Rs 2,000 crore, devolved on the RBI and primary dealers to the extent of 50 per cent. The cut-off yield on the paper was determined at 13.82 per cent at the auction.

Dealers said the six-year paper was being taken up largely by the public sector banks. A few of these banks said the primary dealers (PDs) were offering them a commission on the paper as high as 50 paise. This high commission was helping the PDs to get a subscription to the paper.

 

According to dealers in the money market, there was hardly any trading interest in the government securities market. Citing the reason for the subdued trading, dealers said it was primarily on account of the hardening in call money rates.

Some of the banks which participated in the auction said the yield to maturity on the six-year paper, including a commission of 50 paise, worked out close to 14 per cent.

This, therefore, proved to be an attractive buy for dealers in the money market. At present,, trading in papers with a similar maturity profile was marginal.sp"-->