Government security prices dropped by a rupee at the medium and longer end of the market while call rates hovered in the 7.25-7.60 per cent range amid continuing border tension.
Government security prices opened lower and went down sharply in the first couple of hours. Prices, however, received support from the nationalised banks later in the day to recover a bit. The trading volume, however, remained low as many of the players were not present.
A primary dealer said, "The war if it starts will increase government expenditure and hence the borrowings. Moreover, it will have a far-reaching impact on the economy as well. This made the players to stay away from the market."
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Another dealer with a private sector bank, however, mentioned that many of the foreign banks were absent on the eve of their year-end closing on December 31 which pushed down the volume as well.
Call rates opened around 7.40-7.60 per cent and eased a bit during the day to around 7.25-7.50 per cent.
A dealer with a private sector bank said, "there was scarcity as large nationalised banks were not lending. However, there was no panic in the market as far as call rates were concerned."
There was no bid in the one-day repo auction. The money market dealers said that market participants were not in a mood to part with liquidity as political uncertainty continued. so they did not opt for putting money in the repo auction.
There was a single bid of Rs 5 crore in the reverse repo auction which was not accepted by the Reserve Bank of India (RBI).
Trading in the government security is likely to remain choppy tomorrow with prices being southbound. In the call money market interest rates should be in a range of 6.80-7.50 per cent.