Liquidity eases on govt spending
| The government spending of around Rs 25,000 crore has led to an improvement in the liquidity in the banking system. Notwithstanding the first phase of 25 basis points increase in the cash reserve ratio (CRR), effective April 14,2007, draining Rs 7,750 crore, liquidity is still seen remaining somewhat easy and traders even expect the call rate to be below the reverse repo rate of 6 per cent on some occasions. The year-on-year inflation is expected to fall below 6 per cent after several weeks, though on account of a base effect. |
| RUPEE Volatile week ahead |
| The rupee is likely to be volatile this week, after the extreme volatility last week, amid expectations that the Reserve Bank of India (RBI) may intervene to check the appreciation in the currency. The RBI had stayed away from the market last week, as dollar selling by banks to meet rupee liquidity needs pushed the Indian currency to an 8-year high of Rs 42.84 a dollar. |
| The rupee has gained in the past five successive weeks. At the end of the last week, the rupee was Rs 42.92 a dollar. The rupee is expected to range between Rs 42.75-43.25 a dollar this week, most of the time below Rs 43 a dollar. The premium on 1-year forward dollar is expected to range between 4.00-4.50 per cent, HDFC Bank said in its market projections for the current week. |
| CALL MONEY Likely to ease further |
| The overnight call rate is likely to remain below the repo rate of 7.75 per cent as in normal times, with the easing of liquidity tightness. The inter-bank call rates eased to about 7 per cent to 7.50 per cent last week after hitting a high of around 80 per cent last week. |
| The call rates eased on account of government spending. However, traders are wary of the possible impact the government securities and MSS auction will have on the liquidity condition in the market. |
| GILTS Range-bound yield |
| The yield on the 10-year benchmark government bond may continue to be in a narrow range of 8.15-8.25 per cent as the last week. |
| The 25 basis points increase in repo rate, the 50 basis points CRR hike and the auction of 7.55 per cent, 2010 market stabilisation bond had turned the market sentiment negative. Trading volumes would remain lower amid lack of demand for government bonds. |
| The government has announced Rs 10,000 crore of bond auctions on April 12 "" Rs 6,000 crore of bonds maturing in 2015 and Rs 4,000 crore of bonds maturing in 2036. Additionally, the central bank will also conduct treasury bill auction under the market stabilisation scheme. |
| CORPORATE BONDS Uncertain times |
| The domestic bond market has been uncertain for the major part of the last week. The higher-than-expected rate of inflation took a toll on the market. The inflation rate as on March 24 stood at 6.39 per cent. The benchmark 10-year paper ended the week high at 8.20 per cent. |
| The easy call rates came as some respite for bond dealers. Mid-week, the benchmark 10-year paper hit a low of 8.22 per cent. This was triggered by the hike in the repo rate to 7.75 per cent, which had taken the market by surprise. The market was also wary of the possible impact the Reserve Bank of India's CRR hike would have on the liquidity in future. |
| The increase in CRR takes effect on April 14 and 28 and will drain close to Rs 15,500 crore from the banking system. The RBI will also conduct an auction of government securities worth Rs 10,000 crore. |