Call rates ease to 10%, government bonds soar.
With banks borrowing only Rs 3,500 crore through the repo window of Rs 20,000 crore to help mutual funds, the Reserve Bank of India (RBI) today decided to conduct special auctions every day till the limit is reached.
But with banks expecting further moves from the government and the central bank – the announcements came after market hours today – only one new bid for Rs 200 crore was submitted. So far, banks have borrowed Rs 3,700 crore through the special, fixed-rate, term repo at 9 per cent to raise money and lend to mutual funds against certificates of deposits (CDs).
While announcing the special repo window yesterday, RBI had also lifted the restriction on banks to extend loans against CDs and buy back the instruments issued by them before the maturity date. The facility is valid for 15 days.
But with liquidity easing in the market and an expectation that the condition will improve further now that the Centre and RBI have announced a package, the government announced two bond auctions for Rs 10,000 crore. The auctions were originally scheduled for last Friday, but were cancelled due to tight market conditions. On Friday, the call rate had touched 23 per cent and the average for the day was close to 20 per cent.
Government bond prices ended up today on hope that RBI’s liquidity-infusing steps may not involve a cut in the Statutory Liquidity Ratio.
The most traded 8.24 per cent, 2018 gilt fell to a low of Rs 101.30 intraday. But it recouped all losses and rose in late trade after ending at Rs 102.20 or 7.90 per cent yield-to-maturity as against Rs 101.95 or 7.94 per cent on Tuesday.
With RBI reducing the Cash Reserve Ratio (CRR), or the proportion of deposits set aside by banks, by 150 basis points from Saturday, Rs 60,000 crore was injected into the system, easing the tight liquidity condition. RBI announced an additional 100-basis point reduction, which is effective retrospectively from October 11 (Saturday) to further ease liquidity. The fresh cut will release another Rs 40,000 crore into the system.
As a result of the moves initiated last week, the weighted average call rate was 10.03 per cent today compared with 9.95 per cent yesterday, according to the Clearing Corporation of India data. On Wednesday, it touched a high of 10.50 per cent and hit the day’s low of 8.65 per cent.
The easier liquidity condition was also reflected in borrowings through the repo route today. Banks raised Rs 55,340 crore through the two liquidity adjustment facility (LAF) operations today as against Rs 62,805 crore yesterday. Last week, banks were tapping the window to raise as much as Rs 90,000 crore in a day.
