Call rate rises over 8% in intraday trade

MONEY MARKET ROUND-UP

There was an acute shortage of dollars in the spot rupee-dollar market today. Strong demand for dollar loans by Indian companies and dollar buying by foreign banks pulled the rupee-dollar exchange rate down, which opened flat with a depreciating bias at 39.40/41. However, dollar selling by exporters led the spot rupee to close at 39.37/38.

According to bankers, most of the banks have stopped giving dollar-denominated loans and are urging customers to take foreign currency loans in other currencies such as euro, Swiss franc and yen. Most of the companies borrow dollars, which cost little, spread over three-month or six-month LIBOR (London Inter-bank Offered Rate) rate of 3/3.10 per cent.

A spread cost can be calculated in terms of percentage of basis points (bps) over the international interest rate benchmark "" ( LIBOR). A basis point is one hundredth of a percentage point.

In this way, companies are saving the cost of placing commercial paper at 9-9.5 per cent in the rupee market or taking a working capital loan and earning an interest rate saving of 5.5-6 per cent.

On the other hand, since the global markets are facing severe dollar crunch, the Indian banks will have to borrow funds from overseas or swap rupees into dollars, both of them being highly expensive propositions.

While banks are dissuading companies to swap dollars for raising rupee resources, they are encouraging genuine borrowers to take foreign loans in other currencies of low interest cost such as Swiss franc, euro and yen.

Another option for the customer, as suggested by banks, is to buy dollars in the forward market, which is keeping the cost of forward premia higher. The annualised premia for six-month and one-year forward dollars is around 2 per cent and 1.79 per cent respectively.

Liquidity: In surplus
Liquidity remained comfortable in the system, but continued to remain unevenly distributed among banks. According to dealers, call rates, at which banks lend and borrow funds, for their daily fund requirement reached an intraday high of 8.40.

The rates in the collateralised lending and borrowing market (CBLO) also remained high since mutual funds were wary of lending fearing redemption from the banks . banks are rushing for liquidity to maintain the cash reserve ration for the reporting fortnight ending February 1.

On the other, the bankers to the initial public issue of Future Capital faced fund requirement since they have to refund the unalloted subscriptions. Unalloted subscription refers to the application of a subscriber to the IPO who does not get allotment of the shares and hence the needs to get the refund of the money.

Reporting fortnight is the Friday of the week when the banks re required to report maintenance of cash reserve ratio to the RBI. CRR is the portion of the deposits mobilised by the banks in a fortnight and kept with the RBI as a statutory requirement.

In order to avoid higher rates of call, there was a net infusion of Rs 6225 crore by the RBI in the market under repo through purchase of securities.

G-sec: Head north
The prices of government securities moved up following the announcement of the government to raise the ceiling of investment in government securities by the foreign institutional investment. It has been raised from $ 2.6 bn to 3.6 bn. Prices moved up across maturities in a range of 10-90 paise with higher price movement being witnessed in the longer end of the maturity.

The yield on the ten year benchmark paper came down to 7.51 per cent as against a closing of 7.56 per cent on Wednesday.

Since the FIIs investment are mostly concentrated in short term papers like treasury bills and one or two year government securities, the yield on the shorter end of the yield curve fell. The yield on the 91 day and 364 day papers fell to 7.16 per cent and 7.45 per cent as against 7.26 per cent and 7.48 per cent respectively on Wednesday.

The yield curve remained almost flat since one year bond was available at 7.46 per cent and ten year bond at 7.51 per cent . The spread has compressed to 6 basis point as against 30-40 basis point earlier.

OIS and corporate bonds: Bullish in short term
The interest rate in the overnight interest rate swap yield curve is staggered with rates going up in extreme short term of three month, rates remaining constant for one year segment and falling in the relatively longer term horizon of five year.

The interest rate in the three month category went up from 7.35 per cent to 7.55 per cent since the market is of the view that liquidity will be tight in the short term but likely to improve in the future. Rates in the one-year segment remained flat at 6.85 per cent while they moved down from 6.70 per cent to 6.67 per cent in the five year segment.

Overnight interest rate swap market is derivative product based on the underlying of the interest rate on the government securities.

IN the corporate bond market, the yield curve remained flat with one year funds and three year funds , both available at 9/9.05 per cent . The yield in the triple A ten year corporate bond was at 9/9.05 per cent, while there were no primary issues. Canara Bank raised funds through one year CD at 8.97 per cent while Sate bank of India mobilised two month money at 7.5 per cent.