The call money market was more or less steady this week with call rates hovering around 7-7.25% mark.  The liquidity was easy throughout the week.  There was an auction of Rs. 3000 crore Government paper on Tuesday which sucked out liquidity from the system but immediately on Thursday there was a redemption of Rs. 3500 crores Government paper.   Following this redemption, the Government further announced an auction of Rs. 2500 crores paper to be made on July 17.  This can tighten the liquidity in the system.   The detailed report follows:

Friday, July 14

Call rates closed below the psychological 7% mark in the call money market on the reporting Friday.  Call rates ended the day at 6.75-7.10%.  There were huge inflows in the market, to the tune of Rs. 3500 crores on account of redemption of G-secs, which kept the liquidity easy.  Call rates falling below the refinance rate was an indication that the banks and the PDs have paid their refinance obligations.  There was also some action in the G-secs market.  The easy liquidity and the lower rates in the call money market generated some interest in the G-secs market and the prices of dated securities went up by 5-10 paise.

Thursday, July 13

The trading in the call money market was severely hit due to poor attendance at the RBI and other commercial banks.  There were heavy rains in Mumbai due to which most of the staff of these banks was not able to attend office.  The system was crippled because the RBI was not able to carry out its clearing operations due to lack of staff.   The RBI, however, carried out its reverse repo auction and accepted three bids at a cut-off rate of 9%.  The banks chose to borrow at such a high rate from the RBI because the call market was not operational on Thursday.  The G-secs was also effected as there was not much of a trading in the market due to lack of operators.

Wednesday, July 12

Call rates ended the day higher at 7.25-7.60% in the call money market.  The outflows towards the 5 year paper auction yesterday affected the market's fund supplies.  The RBI's open market operations and a fresh Rs. 2500 crore Government borrowing will further put some pressure on call rates.  The sentiment in the G - secs market was also weak after the auction announcement with long term paper shedding 5 - 6 paise.  The newly issued paper was also down in the afternoon trades.   The market was expecting such a borrowing announcement following the inflows due to redemption of Rs. 3500 Government paper on Thursday.  Volumes in the market were thin because the market was crippled due to lack of staff which was not able to attend office due to heavy rains in Mumbai.

Tuesday, July 11

Call rates closed at 7.2%, marginally higher than their yesterday's close due to last minute demand for funds to cover the reserve requirements ahead of the 5 year paper auction.  Call rates opened almost unchanged at 7.05-7.10% and most of the deals were struck in the region of 7-7.05% and some stray deals were reported at 7.20% towards the end of the day.  Steady demand for money to cover the reserve requirements and the auction of 5 year Government paper put some pressure on the call rates and pushed them up.  They were not enough lenders, which kept the liquidity tight in the market.   The prices in the G-secs market rallied slightly in anticipation of a lower cut-off for the proposed auction of the sovereign paper.

Monday, July 10

Call rates closed almost unchanged from their weekend level of 7-7.10% on Monday.   The easy liquidity conditions prevailing in the market kept the call rates down.   There was good demand for funds, however, just ahead of the Rs.3000 crores auction of Government 5-year paper on Tuesday.  The RBI fixed a cut-off rate of 7% at its reverse repo auction window which also set a benchmark for the call rates.  Tuesday's auction is expected to be oversubscribed with easy liquidity in the system.  We don't think that this auction will effect the call rates much because currently there is easy liquidity conditions in the market.

Rajneesh Mittal