Call money ends lower at 6.40 pc on surplus cash condition

Mumbai, Feb 22 (UNI) Interbank call money closed today lower at 6.40-6.50 per cent as compared to the previous day's opening of 6.80-7.00 per cent on sustained selling pressure by local opeators.

The rate has eased on account of cash surplus due to suspected intervention by the central bank in the foreign exchange market, where it buys dollars for rupees.

Indian federal bond yields edged up on today as investors fretted that a comfortable level of surplus cash in the banking system could prompt more tightening measures by the Reserve Bank of India (RBI).

Surplus cash, as reflected by the daily reverse repo auction, rose to Rs 9000 crore (US 2 billion dollars) today from Rs 8500 crore on Monday.

The yield on the 10-year bond ended at 7.96 per cent, four basis points higher than the previous close.

Market expected the central bank to resume selling market stabilisation scheme bonds. Currently, it sells 91-day bills every week and 182-day and 364-day treasury notes every two weeks under the stabilisation scheme.

The central bank announced an increase in banks' reserve requirements this month, following a similar move in December, and increased its lending rate on January 31 to rein in the inflation.

The first stage of the cash reserve ratio increase took place on February 17, while the next will take effect on March 3. It will absorb a total of Rs 1400 crore from the system.

The comfortable cash position helped the auction of 10-year bonds, held by seven states, to sail through smoothly today. The states raised a total of USD 34 billion via the auction, dealers added.

UNI