Call money rates rose sharply to touch an intra-day high of 8 per cent as a few banks, who had not covered their position for the fortnight, rushed for liquidity during the closing hours.
Government security prices fell further in the morning and stabilised in the later hours of the day.
Call rates opened in the 7.20-7.30 per cent band and went up during the day to eight per cent. They dipped a bit to close in the 7.20-7.25 per cent range.
"Liquidity was slightly under strain due to the Rs 5,000 crore auction outflow. Moreover, a few banks had not covered their position earlier and this caused the rates to soar high today," a dealer with a private sector bank said.
The strain in liquidity was reflected in the liquidity adjustment facility auction. After a long time, the Reserve Bank of India (RBI) received two bids worth Rs 60 crore in its three-day reverse repo auction, which it accepted at a cut-off rate of 8.50 per cent. The central bank did not receive any bid for its three-day repo auction.
Government securities market was volatile as RBI deputy governor Y V Reddy statement caused concern. Prices fell by Re 1 at the longer end. They, however, reverted back in the later hours of the day.
"After the RBI deputy governor's statement, it became clear that there will not be any immediate bank-rate cut. This caused prices to heavily fall yesterday late evening and today morning. Prices came back as banks are left with liquidity, but very few options to invest in."
Call rates are expected to remain in the 7-7.25 per cent range as the demand for overnight money will be higher on the very first day of the reporting fortnight.
Government security prices are expected to rise by 15-20 paise across the maturities on the back of ample liquidity.
