Volatility in the forex market pushed down the long tenure government security prices by 15-20 paise today. Call rates remained in the 6.40-6.60 per cent band on the eve of reporting Friday.
Government security prices opened lower by 5-10 paise and dipped further during the day, but the trading volume was low.
A dealer with a private sector bank said, "There was enough liquidity in the market. But as the rupee fell sharply in the morning, it created a slight selling interest at the long end of the market."
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Dealers said that the fall in prices could be by another 10 paise but the liquidity overhang in the system saved the day for gilts.
In the call money market, rates were stable around 6.40-6.60 per cent as the demand was very thin.
A senior dealer said, "Most of the banks have covered their cash reserve requirements with only one day left in the current reporting fortnight. This was the reason for a very low demand and soft call rates."
With the demand in the call market remaining low, big lenders put their money in the one-day repo auction. The Reserve Bank of India (RBI) today received six bids of Rs 8,940 crore for 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 bid in the one-day reverse repo auction.
In the government security market, prices will move in tandem with the rupee's movement against the greenback.
Dealers said that if the forex market turns stable tomorrow, prices can go up by 20-25 paise at the long end of the market. Call rates should hover around the refinance rate of 6.50 per cent unless some demand from the banks for their uncovered position comes in at the last moment.