Liquidity deficit above Rs 1.5 lakh cr for 2nd day

The liquidity crunch is showing no signs of easing, with banks on Tuesday borrowing Rs 1.57 lakh crore from the repo window of the Reserve Bank of India (RBI). On Tuesday was the second consecutive day when the deficit crossed Rs 1.5 lakh crore, despite last week’s measures by RBI.

On Monday, banks borrowed Rs 1.6 lakh crore from RBI’s liquidity adjustment facility. During the mid-quarter review of the monetary policy last week, RBI had announced buyback of government bonds worth Rs 48,000 crore in one month through open market operations and reduced banks’ statutory liquidity ratio (SLR) from 25 per cent to 24 per cent. The reduction in SLR will release Rs 50,000 crore into the system.

“The liquidity tightness is unprecedented, which is exerting upward pressure on rates. I expect it to continue like this for some more time,” said Bipin Kabra, chief financial officer, Dhanlaxmi Bank.

Banks have been borrowing Rs 1 lakh crore daily on an average from RBI’s repo window since November, an indication of extreme liquidity squeeze.

Bank of Baroda Chairman and Managing Director M D Mallya expects the situation to improve in the next 15-20 days due to government spending, open market operations by RBI and reduction in SLR.

Rupee advances 

The rupee advanced the most in two weeks on speculation banks will sell dollars to replenish cash due to a funds crunch in the nation’s financial system.

The rupee extended this month’s gain to 1.5 per cent, the best performance among Asia’s 10 most-traded currencies. The average overnight borrowing rate between banks climbed to 7.01 per cent this week from 6.67 per cent last week, signaling cash is becoming scarcer. The Bombay Stock Exchange’s Sensitive Index rose for a third day, fuelling optimism overseas investors will increase holdings of local equities.

The rupee strengthened 0.5 per cent to 45.23 per dollar, as of the 5 pm close in Mumbai, the biggest daily increase, since December 7, according to data compiled by Bloomberg. The rupee may trade between 45.20 and 45.35 on Tuesday, Bhatt said.

Indian lenders have borrowed money from the central bank on most days since September 9 to meet a cash shortage as record share sales by local companies drained money from the financial system.

Offshore forwards indicate the rupee will trade at 45.93 in three months, compared with expectations for a rate of 46.19 yesterday. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.

10-year bonds rise
The 10-year bonds rose, pushing the yield to the lowest level in almost three months, after the central bank said it would repurchase Rs 12,000 crore ($2.7 billion) of government debt this week.

The Reserve Bank of India (RBI) said in a statement yesterday it will buy back debt maturing in 2015, 2017 and 2020 at an auction on December 22.

“Investors are building positions in those bonds which will be bought back by the RBI,” said Debendra Kumar Dash, a Mumbai-based fixed-income trader at Development Credit Bank Ltd.

The yield on the 7.80 per cent bonds due May 2020 dropped four basis points to 7.93 per cent as of the 5 pm close in Mumbai, according to the central bank’s trading system. The price rose 0.26, or 26 paise per Rs 100 face amount, to Rs 99.13. A basis point is 0.01 percentage point. It fell as low as 7.91 per cent earlier, the lowest level since October 1.

The cost of one-year interest-rate swaps, the fixed payment made to receive a floating rate, fell one basis point to 6.84 per cent.

Call rate ends firm
The interbank call money rate for one-day borrowings ended firm on Tuesday on high demand from banks seeking to meet reserve requirements early in the new reporting fortnight even, as liquidity remained tight, dealers said.

The one-day call rate ended at 6.95-7.00 per cent, flat from Monday. CBLOs ended at weighted average rate of 6.27 per cent, as against 6.27 per cent in the previous session.

Dealers expect call rate to remain well above the repo rate of 6.25 per cent but added that it may ease slightly from current levels by the end of the week after banks finish meeting their product needs.