Call money closed lower at 6.97-7.10 per cent levels compared with the previous close of 7.00-7.20 per cent amidst ample liquidity, rupee's firming up against the dollar and expectation of a rate cut.
The prices of long-term government securities appreciated by around 80 paise in early trades before profit-booking saw the prices come down by 50 paise.
A dealer with a private sector bank said, "The liquidity was comfortable in the market and the trading sentiment was positive."
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He pointed out that the overnight money was being quoted at above the refinance rate due to the outflows of around Rs 7,000 crore last week on account of advance tax payments.
The Reserve Bank of India (RBI) did not receive any bids for the repo and reverse repo auctions, conducted under the liquidity adjustment facility. The inflows into the banking system stood at Rs 1,633 crore.
Another dealer said, "The RBI is doing a fine balancing act of infusing liquidity into the system by purchasing government securities through open market operations and keeping the rupee from depreciating drastically."
The benchmark 11.50 per cent 2011 government security, which closed on Monday at Rs 113.85, shot up to Rs 114.65 (yield 9.25 per cent) before closing the day at Rs 114.15 (yield 9.31 per cent).
"Players are preferring to book profits every time securities rise by 15 to 20 paise. Though securities prices have recouped substantially, they have not yet reached the pre-September 11 levels. And the yields have declined by six to 10 per cent," the dealer said.
Call money rates are expected in the range of 7-7.15 per cent tomorrow, while the prices of government securities could move by 10 paise on either side.