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Our Banking Bureau
Mumbai, Jan 13: The overnight call money rates pierced the 10-per cent barrier to touch an intra-day high of 10.75 per cent on Wednesday as sudden tightening of liquidity gripped the market.
The call rates opened at 9.75-9.90 per cent, 15-30 basis points higher than its previous close of 9.60 per cent. Throughout the day, the rates ruled tight between 10.50-10.75 per cent to finally close at 10.75 per cent.
"A few deals were also struck at 11 per cent," dealers said.
According to market perception, tightening in the call rates is due to lack of surplus funds in the system. "There has been no major inflow into the system for the past two weeks. The fact that the system has not received the total tax outflow to the tune of Rs 4,000 crore which was expeected to come into the system in the first week of January is keeping the call rates tight," said one official with a primary dealer.
Debt market dealers are of the view that the high demand for funds which has tightened call rates is due to the fact that most banks are short on their cash reserve ratio (CRR) requirements. "The demand from these banks have triggered a hike in the call rates," dealers said.
Another view is that most active security traders are currently taking positions in the market in expectation of the inflow of Rs 3,000 crore which is likely to come into the system on January 18 through redemption of zero coupon 1999 paper.
In expectation of the inflow next week, the RBI sold about Rs 2000 crore worth of securities last week through its open market operations.
The tight liquidity prevailing in the system is evident from the fact that RBI has not received any application for its fixed rate repo. The total repo outstanding with RBI is also nil.
The tight call rates saw marginal fall in the prices of short-term gilts on Wednesday due to slight selling pressure. "Banks were offloading gilts and liquidating their portfolio in order to have sufficient funds as reserves," said a dealer at a private bank.
The forward premiums across the board also firmed up owing to lot of paying pressure on rupee in the forward market as a few corporates who had to pay in the Indian currency were not able to raise funds from the term money market at high rates.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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