Call rates zoomed to a high of 45 per cent, in the aftermath of the Reserve Bank of India's (RBI) liquidity tightening measures, before closing at 9.5-10 per cent as traditional lenders returned to the market. The rupee also appreciated to close at 42.57, against 42.90 on Thursday.
On Thursday, the RBI hiked the cash reserve ratio for banks to 11 per cent from 10 per cent, and the fixed rate on its securities repurchase (repo) agreement to eight per cent from five per cent.
Forward trade was volatile initially as dollar premiums tracked call rates. Sell-buy swaps for August to October maturities by the central bank fuelled the rise. Dollar premiums crossed 19 per cent for one month and 16 per cent for six months as call rates surged. They closed at 18.97 per cent (19.04)for one month, 12.29 per cent for six months (12.43) and 12.21 per cent (11.55) for 12 months.
Call rate opened at 15-20 per cent and climbed steadily as traditional lenders kept out of the market. Panic spread and stray deals were reported at 40-45 per cent levels also, dealers said. But, relatively good liquidity conditions did not warrant the high rates. Soon after, lenders entered the market and rates quickly eased to the close levels.
Government bond prices recovered as rates dropped. Among government securities, the 11.55 per cent 2001 firmed to Rs 99.40 compared to Rs 98.75 in the morning. The 11.75 per cent 2001 dealt at par compared to Rs 99.20 earlier.
"Many banks covered in excess earlier during the week since there were two holidays in the beginning of the fortnight. Hence, borrowing requirments may not have been too high," said a dealer with a private bank.
"Foreign banks who needed funds could have sold dollars on a cash over spot basis for the period when call rates were very high. This could also explain why there were not many borrowers towards the end," said another dealer.
Surprisingly, two bids were received for Rs 2,860 crore at the eight per cent three day repo yesterday despite the high call rates. "This must have been put in by surplus players when call rates dropped," said a dealer.
Some primary dealers availed of central bank refinance at nine per cent.
The RBI marginally revised price on government bonds on its sale window. "It is trying to protect the yield curve by signalling that the reaction to the measures is only an aberration and the YTM still holds," said a market player.
