Call rate hits double digits on advance tax

The call money rate was back into double digits today after three months, following an estimated outflow of around Rs 40,000 crore towards advance taxes for the fourth quarter of the 2006-07 financial year.

The call rate is the overnight interest rate paid by banks to borrow and lend funds in the interbank market to meet daily requirements. The call rate closed as high as 10.38 per cent (the most since January 2) after touching 11 per cent intra-day, making it more expensive to buy debt with borrowed funds.

Throughout the week, the Reserve Bank of India (RBI) absorbed funds of around Rs 25,000 crore every day. On Friday, however, it had to infuse Rs 11,500 crore to meet market demand.

Besides the tight liquidity, the market also reacted to inflation, which touched 6.46 per cent for the week ended March 3 against the market expectation of 6.25 per cent. This also fuelled concerns that the RBI will raise interest rates.

Meanwhile, the yield on the 10-year paper closed at a month's high of 8.01 per cent while the five-year paper ended at 8.07 per cent following a fall in gilt prices by about 10-20 paise across maturities. Bond yields move inversely to prices.

The yield on the benchmark 8.07 per cent bond due January 2017 rose 3 basis points, or 0.03 percentage points, this week to 8.02 per cent. The price fell 0.19, or 19 paise per Rs 100 face value.