Crr Bullet-Cut Talk Hits $ Premia

Reserve Bank of India (RBI) deputy governor YV Reddy's suggestion of a one-shot cut in the cash reserve ratio (CRR) had a very limited impact on the government securities market. Government paper prices closed about 15-20 paise higher from yesterday's level. But the forward premia reacted sharply as the rates dipped by 10-20 basis points across the spectrum. The six-month annualised premium dipped to six per cent today from yesterday's closing of 6.20 per cent.

The rupee, however, remained stable, strengthening 1.5 paise against the dollar to close at 48.27/28 today. With today's rise, the rupee has recovered by 14 paise since the beginning of the current week. The currency closed at an all-time low of 48.41/42 against the greenback on Friday.

Reddy reiterated that the central bank's medium term objective was to bring down the CRR to three per cent from the present level of 5.5 per cent.

In the government securities market, prices went up by 25-30 paise in the morning in reaction to Reddy's statement. However, prices came down later owing to profit-booking. Dealers said that prices were already at very high levels and there was very little scope for them going up further (on expectations).

A primary dealer said: "Prices can only increase sharply from this level if the policy is actually announced and implemented."

A dealer at a private sector bank also said: "Reddy said that the cut in the CRR will come along with some other policy measures. Market players were not sure what the other measures would be.