Government paper rates fell by Re 1-Rs 1.50 across maturities today, while call money hovered in the range of 6.25-6.70 per cent.
According to dealers, there were many reasons for the decline in government security prices. First, participants were retaining funds for advance tax purposes. Secondly, there was tension in the market on the Ayodhya issue. A section of dealers also said the killing of a Samajwadi Party leader in Uttar Pradesh also affected sentiment.
"The larger government borrowing programme for the next fiscal also gave the impression that the interest rate may not remain soft. This prompted the participants to offload their gilt holdings," a primary dealer added.
In the liquidity adjustment facility (LAF) repo auction, there were four bids worth Rs 5,925 crore, all of which were accepted at a cut-off rate of six per cent. There was no bid in the one-day reverse repo auction.
Call rates opened in the 6.60-6.70 per cent range today. There were not too many lenders in early hours. The situation, however, eased in the afternoon and the rates closed around 6.25-6.40 per cent.
Government security prices are likely to remain stable tomorrow, moving about 20-25 paise around the current level. A dealer said, "Prices, have already fallen too much over the last couple of days. It should stabilise at the current level now."
In the call market, rates will continue to hover around 6.25-6.75 per cent.
According to dealers, the liquidity condition in the market is good and as most of the banks have covered their cash reserve requirement already, so the demand for call money will be low in the market as well.
