Call money rates catapult to all-time high of 140%
Our Banking Bureau
MUMBAI, January 17: The Reserve Bank of India's (RBI) tight money policy, announced on Friday, played havoc in the overnight call money market today with interest rates breaching all barriers to touch an all-time high of 140 per cent. Exactly a month back-on December 18-the call rates had peaked at 50 per cent on account of sudden tightness in the money market due to outflows.The government securities market also reacted "violently" with prices crashing on distress-selling by banks. The price of the 12.59 per cent gilt maturing in 2004 fell by Rs 2.50 today to Rs 98.00, while the 12.50 per cent gilt maturing in 2004 fell to Rs 99.50 from Rs 100.35. Dealers said that repo deals in securities were conducted at 50-55 per cent for the entire fortnight. "It was a panic-driven market today as no one did know how to react to the RBI measures," a dealer in a brokerage firm said. One of the State Bank of India associates lent at 140 per cent to a small foreign bank. On Friday, the Reserve Bank tightened money bypushing up the bank rate by 200 basis points to 11 per cent and hiking the cash reserve ratio (CRR) by 50 basis points to 10.5 per cent. The rupee-support package is expected to push up interest rates all over. The overnight call money opened in the region of 25 to 30 per cent, against yesterday's close of five-six per cent, and rocketed to touch an all-time high of about 140 per cent in the morning session itself. "There were quotes at 150 per cent, but I do not think deals were done at that level," a dealer in a private sector bank said. However, as the day progressed, sanity returned to the money market as nervousness declined and call rates fell to 40 per cent before finally closing at 20 per cent. "Most deals were done in the range of 40 to 60 per cent today. On Monday I think the rates will open at 15-20 per cent and will continue at these levels," a dealer said. According to market sources, although traditional lenders like IDBI and UTI were present in the market, it was the private sector mutual
funds like DSP Merrill Lynch and Jardine Fleming which lent funds at 70 to 80 per cent on Saturday. "In the absence of the State Bank of India in the market, these mutual funds made a killing," a broker in the debt market said.In the securities market, prices of both the long-term as well as the short-term papers crashed and yields -- which move in reverse direction -- went up. The yield of a short-term security like the 13.50 per cent gilt maturing on April 18, 1998, went up to 13.35 per cent on Saturday from 11.70 per cent. The treasury bill maturing on January 30 was traded at 14 per cent, while the treasury bill maturing on April 24 was traded at 15 per cent. The hike in cash reserve ratio has sucked out Rs 2,500 crore from the system, while banks' total refinance resources shrinked by Rs 3,450 crore following the cut in the general refinance limit. "Liquidity is coming at a premium and it is better to hold on the gilts and refrain from trading. Let the dust settle down
and allow the rupee to stabilise," a debt analyst in SBI Capital Markets advised banks. "Instead of adopting these measures, the Reserve Bank should have allowed the rupee to fall freely by its own market mechanism," a treasurer in a foreign bank said.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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