The Hindu Business Line : Call rates plunge to 0.2%

Mumbai, July 5 The fluctuating inter-bank call rates have left the market guessing. Just about three months ago, call rates were zooming at a high of 60 per cent and now it is trading at below one per cent levels for the past three days. The call rates closed at 0.20–0.40 per cent on Thursday against the previous close of 0.50–0.75 per cent.

The volatile call market has perhaps adversely affected swap trading. “Call rates at such low levels have created serious carry risk for swap traders. Swap traders were finding it difficult to manage carry (difference between fixed and floating rates of interests in a swap market),” said Mr Ajay Mahajan, Group President, Financial Markets, Institutions & Investment Management, YES Bank. On one hand, call rates were at a low of 0-1 per cent level and on the other the yield on the 10-year paper peaked to a 4-year high of 8.45 per cent.

Surplus cash

“The reasonable liquidity condition might prevail for a few more weeks,” said Mr Mahajan who feels that at current levels of rupee, the exchange rate management is expected to be equally strong a priority as interest rates have been. Dealers attributed the surplus cash in the system to the strong FII inflows, the central bank’s intervention in the forex market to cap the appreciation of rupee.

“The cap of Rs 3,000 crore on the reverse repo announced by the RBI has left the system with surplus cash. This step was taken by the central bank mainly to ensure that banks subscribe to Market Stabilisation Scheme auctions. Now that the RBI is not announcing such MSS, it will be a good move to remove the cap to bring the volatility under control,” said the Head of money markets at a private bank.

The central bank received bids worth Rs 94,220 crore through the reverse repo window under the two sessions of Liquidity Adjustment Facility while it accepted Rs 1,997 crore. The apex bank did not receive any bids through the repo window. In the first one-day reverse repo auction, RBI received 40 bids for Rs 55,370 crore while it accepted bids worth Rs 1,996 crore.

In the second one-day reverse repo auction, RBI received 34 bids for Rs 38,850 crore while it accepted Rs 1,001 crore. There were no repo bids in the first and second one-day auctions. The CBLO market saw 235 trades aggregating Rs 20,483 crore in the 0.02-0.10 per cent range.

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