Wednesday, January 30, 2008

Measures taken by RBI boosted liquidity

Liquidity: In surplus

The government’s main source of liquidity for the market was the expenditure and intervention by RBI in the foreign exchange market to stem the rupee appreciation

Therefore liquidity remained comfortable with the RBI engrossing around Rs 14,000 crore from the system.

In the past few days, RBI was not able to contract sell-buy trade as the system has been short of liquidity. Thereby any purchase of dollars by RBI is resulting in infusion of the rupee liquidity in the market. Interest rates, at which banks lend and borrowed funds from the market for their daily requirement, was higher at 6.90 per cent even after reaching low of 5.50 per cent. As per dealers, interest rates firmed up because banks were cautious about the liquidity at the meeting of the monetary policy review on Tuesday. The seven banks who are managing the initial public offer of Reliance Power, the money wedged with them yet has to come back to the system. Rates on the collateralized lending and borrowing market (CLBO) were also ruled higher as mutual funds lent with caution, fearing bad recovery of funds till liquidity eases.

G-sec: Lacklustre

The government securities (G-sec) trading market lacked shine as most of the dealers remained out of the market. Most of the market participants had gone overseas to attend a conference organized by the Fixed Income Money Market and Derivatives’ Dealers’ Association (FIMMDA). Volumes remained low at around Rs 5,120 crore and the market witnessed a heavy selling pressure towards the end of the trading session.

A dealer said as the outcome of the monetary policy review to be held on Tuesday is not known, traders do not want to build opinions. Prices established in a narrow range of 10-15 paise and remained flat in the shorter end of the maturity. Last week the yield on the benchmark ten-year paper closed at 7.45 per cent as against 7.39 per cent. In the same way the yield on the 91-day T- bill settled around 7 per cent.

OIS and corporate bonds: Brisk trade

As the position of the interest rate remain uncertain and dealers are doubtful of a repo rate cut in the monetary policy review on Tuesday, yields on the overnight interest rate exchange market firmed up. Against maturities, yields firmed up by 2-4 basis points. Banks got into deals wherein they paid in fixed rate of interest and received in floating rate of interest. The overnight interest rate swap (OIS) market is an imitative product based on the fundamental of the interest rate on government securities. The one-year segment, which witnessed brisk trading profit summed up from 6.59 per cent to 6.63 per cent. Even the corporate bond market trading lacked shine with yields settling flat. On the long end of the maturity, the yield on the triple-A bonds for a ten-year maturity established around 9-9.05 per cent. While on the shorter end of the maturity, there was selling of commercial papers and certificates of deposits by mutual funds, which have remained liquid fearing bad recovery.

Rupee: Ends up

The mark-up rupee opened at 39.43 to a dollar, but trailing on profit-taking and consequent sell-off in the equity market, it fell to 39.49. At these levels, exporters sold dollar in large volume receivable at least in the near term of one or two months. This led the spot rupee to close at 39.38-39 to a dollar.

The annualized premia closed at 2.15 per cent and 1.7 per cent respectively for six-month and one-year forward dollars.

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