Government security prices increased by more than a rupee today as the Reserve Bank of India (RBI) governor expressed his comfort over the recent rally in the market.
Call rates continued in the 6.50-6.85 per cent range despite the Rs 2,000 crore worth outflows on account of Wednesday's five-year floating rate paper auction.
Government security prices opened on a weak note. Dealers said that market players were confused over a negative premium over the base rate at the floating rate bond auction. However, the situation improved considerably after the RBI governor's statement.
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A dealer with a foreign bank said: "There was liquidity in the market. But there was a rumour that the apex bank will mop up funds through open market operations. However, after the governor's statement, players thought that there is not much possibility in short run and bought heavily."
In the call money market the situation continued to remain the same. The demand was low as most of the banks were flushed with liquidity. Call rates opened in the 6.70-6.85 per cent band and went down gradually during the day to close in the 6.50-6.60 per cent region.
A primary dealer said: "The growth in bank deposits and coupon payments on government papers kept the market fluid even after the Rs 6,000 crore worth auctions in the last three days. Excess demand for overnight money that used to be there in the first week of the reporting fortnight is also absent this time."
The RBI received three bids worth Rs 9,065 crore at its one-day repo auction. The apex bank accepted all the bids at a cut-off rate of 6.50 per cent. There was no bids at the one-day reverse repo auction.
Call rates are likely to remain in the 6.50-6.85 per cent band tomorrow. The rally in government securities is likely to persist, though it may not be as sharp as today.