Call rates remained high in the 8.40-8.75 per cent range today as banks rushed to cover their cash reserve ratio requirements. Government security prices surged by Rs 1.50-2 at the medium and long end on the back of the rate cut by the US Federal Reserve.
Call rates opened around 8.50-8.75 per cent and slipped to close in the 8.40-8.50 per cent band as the Reserve Bank of India (RBI) infused liquidity through the reverse repo auction.
A primary dealer said, "The liquidity situation was tight in the morning as most of the state-run banks were buying government securities instead of lending in the call market. But the central bank intervened to ease the situation through the liquidity adjustment facility auction, resulting in overnight rates coming down."
The RBI today received 14 bids worth Rs 3,210 crore for the one-day reverse repo auction. The central bank accepted all the bids for Rs 3,160 crore at a cut-off rate of 8.50 per cent.
Government security prices opened 20-30 paise higher compared with yesterday's closing levels and continued to go up.
The treasury head at a private sector bank said, "Though the liquidity situation was not very comfortable, the market sentiment pushed the prices up. The market is expecting the RBI to cut the repo rate following the Fed rate cut, and this was the main reason behind the rally in the government security market."
Call rates should remain high in the range of 7.25-8.25 per cent tomorrow. A dealer with a foreign bank said, "The liquidity condition is not yet good and it seems that some of the banks are undercovered. So overnight rates are likely to remain tight."
In the government security market, dealers are expecting the sentiment to remain bullish and prices to go up. However, there will be a bit of profit-booking if the prices rise too much.
