Call rates ruled steady for the entire week and closed lower towards the end of the week. There was ample liquidity in the system due to the redemption of dated securities and coupon payments. Although Friday was the reporting day, most of the banks had covered their reserve positions. Therefore there was no pressure on the call rates. The RBI sucked out nearly Rs. 5500 crores from the market on Friday. Also the liquidity tightening measures it announced on last Friday to prevent the volatility in the forex market will come into effect this Saturday onwards. The RBI announced a 1% increase in the bank rate, a 0.5% in CRR and 50% reduction in the refinance limit of the banks. All this will tighten the liquidity in the money markets in the coming week and we expect call rates to firm up in the coming week.

Friday, 28th July

Call rates closed lower in a broad range of 7.8-8% in the inter-bank call money market. It was the reporting Friday but most of the banks had covered their reserve positions. So there was no pressure on the liquidity and as a result, call rates were steady. The RBI was into action taking out money from the market through its repo auction where it accepted  three bids worth Rs. 2100 crores. Also the RBI raised another Rs. 3000 crores through the on tap sales of 6 year bonds. All this coupled with the liquidity tightening measures, which the RBI announced last Friday, will keep the liquidity tight in the coming week and call rates might go up. In the G - secs market, the prices firmed up a bit after the 6 years bond auction at a yield of 11.30% were sold out.

Thursday, 27th July

Call rates closed hardly unchanged from their previous close at 7.8-8% as a result of easy liquidity conditions in the inter bank call money market. Call rates opened at 7.9 - 8.05% and eased down to 7.75% soon after opening before closing at these levels. There was ample liquidity in the system due to redemption of dated securities and the 89% devolvement of 4 year paper auction on the RBI. The liquidity can be judged from the fact that there were 4 bids at the RBI's repo auction for Rs. 7100 crores and the RBI accepted all the bids at a cut-off rate of 8%. The RBI further announced an auction of Rs. 3000 crores 6 year bond auction and another Rs. 3000 crores 10 year bonds with effect from Friday.

Wednesday, 26th July

Call rates closed even lower on Wednesday at 7.9-8% amid easy liquidity conditions and less demand for funds. The call rates opened slightly lower than the refinance rate of the RBI, moved in a very narrow range before closing lower. The easy liquidity was mainly due to the 89% of devolvement of the Rs. 4000 crores 4 year paper auction on the RBI. The auction was not taken up by the banks because the interest rate levels are still very uncertain. After Saturday, we will see a movement in the interest rates and a changed yield curve. That is why, the banks were not ready to take up the auction.  The RBI is accepting the GoI securities at Rs. 104 at its repo auction window, gilt prices went up on Wednesday. The move sent contradicting signals to the markets. On the one hand, the RBI has decided to tighten the liquidity in the market and on the other hand, it is pumping funds in the market by buying securities at high prices. The operators were pretty confused about this.

Tuesday, 25th July

Call rates remained steady on Tuesday due to adequate liquidity in the system and low demand for funds. The call rates opened and closed around the same levels as of yesterday at 8-8.10% amid low demand for funds as most of the banks had covered their reserve positions in the first week of reporting cycle itself. The inflows on account of redemptions and coupon payments kept the liquidity easy and those were enough to satisfy whatever demand for funds was there. The RBI is making an auction of Rs. 4000 crores 4 year paper tomorrow. The secondary market for G-secs continued to be under selling pressure despite the liquidity in the system with short-term paper shedding as much as Re. 1 and medium term paper shedding 50-60 paise.

Monday, 24th July

Call rates ended lower in the inter bank call money market due to very low demand for funds. The RBI's measures seemed to be working. Most of the banks were in the forex market liquidating their long dollar positions and therefore the demand for funds was very low. Call rates ended the day at 8-8.10% against their weekend close of 8.20-8.30%. Call rates opened high at 8.5-8.75% but soon after that, as the demand for funds lessened, they started to fall down. There were also inflows in the market on account of redemption of GoI dated securities that ensured enough liquidity in the market. The measures announced by the RBI on Friday didn't have much of a effect on call rates as the measures will come into effect on this Saturday. The market for G-secs continued to be under selling pressure because of the measures announced by the RBI. These measures will lead to an increase in the interest rates in the economy and therefore the prices of G - secs are falling.

Rajneesh Mittal