Government security prices closed marginally high in a very volatile market today. Call rates came down to close in the 6.40-6.50 per cent range after remaining high around 6.75-7.00 per cent in the morning.
Money market dealers attributed two reasons -- high call rate and the RBI statement regarding no early cut in bank rate -- for a decline in the government security prices.
A dealer with a private sector bank said, "The high call rates in the early hours suggested shortage of liquidity in the banking system and prompted selling interest. However, the downfall did not last long as overnight rates came down during the day."
The high call rates was due mainly to advance tax outflow. According to the dealers there has been around Rs 10,000 crore of advance tax outflow so far since March 15.
"In a market with daily turnover of Rs 20,000-- Rs 30,000 crore it created a shortage. Many of the traditional lenders are also absent nowadays," a dealer said.
In the one-day repo auction there were four bids of worth Rs 890 crore. The RBI accepted all the bids at a cut-off rate of six per cent. The central bank did not receive any bid for its one-day reverse repo auction.
Call rates are expected to remain soft and hover around 6.30-6.75 per cent. Money market dealers said that with the approach of reporting Friday, the demand for overnight money will come down and this will help call rates to dip. In the government security market, prices are likely to remain range-bound. Dealers expect volume in the gilts market to remain dull as many players are expected to stay inactive.
