Call rates went up in the morning to touch 7.35 per cent as the auction outflow created a temporary strain on the liquidity, but came down to close in the 6.95-7 per cent range. Government security prices went up by 15-20 paise as Reserve Bank of India (RBI) governor once again maintained his positive outlook on interest rates.
Call rates opened around 7.15-7.25 cent in the morning and went up to touch 7.35 per cent immediately. The rates, however, came down later to close below the seven per cent mark.
A dealer said, "The rates were high in the morning because of the auction outflow. However, as the demand was low on the eve of the reporting Friday, overnight rates came down during the day."
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RBI did not receive any bid for its one-day repo as well as reverse repo auction. Dealers said that the lenders did not have enough fund to put in the repo window because of the auction outflow and nobody was interested to part with the liquidity before the reporting Friday.
Prices in the government securities market staged a recovery today after RBI governor reiterated its bias for soft interest rate regime. Dealers said, "After the S&P downgrading, sentiment was hit heavily but RBI governor's statement strengthened the sentiment once again and the prices have recovered in the last two days."
Call rates are expected to come down and remain below the refinance rate of seven per cent tomorrow on account of it being a reporting Friday. Demand for overnight money will also remain low.
The treasury head of a private sector bank said, "We expect low trading volume and soft rate in overnight market tomorrow."
Government security prices are expected to move up another 10-15 paise at the long end as the dealers are expecting there are still space for recovery.