Government security prices went up sharply by more than a rupee across all maturities as the Ayodhya tension eased off. Call rates rose as high as 7.20 per cent because of liquidity shortage caused by the advance tax outflow started today.
Government security prices opened on a weak note and the trading remained dull in the morning session as the market was concerned about the Ayodhya happenings. However, according to the dealers, as the people concerned agreed to conduct the 'puja' away from the disputed site, prices started moving up.
A dealer with a private sector bank said, "the dip in prices over the last couple of days was mainly because of the Ayodhya imbroglio. As it seemed to be over, prices staged a rally."
In the call money market, overnight rates opened around the 6.50 per cent level. However, the advance tax payment pushed up the rates and it went up to 7.20 per cent level by afternoon and closed at those levels. Money market dealers said that except State Bank of India (SBI) there was no major lender in the market. Even some of the public sector banks who are the traditional lender in the call market, turned borrower today.
The advance tax outflow had its impact on the liquidity adjustment facility auction as well. For the second consecutive day the Reserve Bank of India (RBI)did not receive any bid in the repo auction.
A dealer said, "the banks were short of liquidity on the back of advance tax outflow, hence, they did not put money in the repo auction."
Call rates are likely to be in the 6.50-7.25 per cent range tomorrow as the money market dealers are expecting the liquidity squeeze to continue even tomorrow. A dealer with a nationalised bank said, "we feel that it will take a week's time for the normalcy to return to the money market."
Government security prices is expected to rally on the back of much improved sentiment. However, dealers said that very high call rates can prevent a sharp rise.
