RBI infuses funds to tackle cash crunch

MONEY MARKET ROUND-UP

Therefore, the interest rate in the collateralised borrowing and lending obligation (CBLO) inched up to a high of 7 per cent.

The liquidity has tightened following an outflow of around Rs 28,000 crore towards enhanced cash reserve ratio and Rs 10,000 crore towards government borrowing last week. The RBI hiked the CRR in three tranches since April 17, 2008 from 7.50 per cent to 8.25 per cent. CRR is a portion of deposits mobilised over a fortnight and kept with the RBI as a statutory requirement.

G-sec: Bearishness prevails

The sentiment in the government securities market remained bearish due to the tight liquidity.

Another reason for the lacklustre trading was the government's decision to increase the fuel prices. "While the actual price rise is yet to happen, the pass-through effect on inflation and apprehension of possible measures from the RBI is keeping the market on tenterhooks," said a dealer.

The prices of government papers fell across maturities, pushing up the yields by 8-10 basis points. As against a closing of around 8 per cent last week, the yield on the benchmark ten year paper 8.24 per cent 2018 closed at a high of 8.03 per cent. Similarly, the benchmark paper for long term - 8.33 per cent 2036 closed at 8.40 per cent.

Mutual funds were sellers in government papers, fearing redemption from banks.

Rupee: Wild swings

The spot rupee opened at 42.76 /78 and strengthened to 42.52 following heavy selling of dollars by exporters and companies. There was no intervention on the part of the Reserve Bank of India to sell dollars for checking fast depreciation of the rupee.

According to dealers, when the spot rupee reached 42.55/60, there was heavy buying of dollars by the oil companies. This once again weakened the rupee and it closed at 42.72/73.

The tight rupee liquidity was reflected in the cost of rupee funds. The rising cost of rupee funds pushed up the premia to be paid for booking forward dollars. The annualised preamia for six month and one year forward dollars closed at 1.96 per cent and 1.47 per cent as against 1.80 per cent and 1.38 per cent respectively last week.

OIS: Lacklustre trading

There was almost no trading in the short-term interest rate swap market of three to six month maturity due to the bearish outlook on liquidity and uncertainty in the shorter end of the yield curve. However, there were brisk trades in the one year and above maturity.  In the highly traded one-year maturity, the yield firmed up from 7.49 per cent to 7.53 per cent. Overnight interest rate swap market is a derivative product based on the underlying of the interest rate on the government securities. Due to the uncertainty in interest rates, there was moderate trading in the OIS market. Traders paid floating and receiving fixed rates on their interest liabilities.  The corporate bond market remained lacklustre as there was no primary issuance of long-term bonds. The interest rate for primary issue of certificate of deposits and commercial papers firmed up by 5-10 basis point from three month to one year maturity. State Bank of India raised nine month funds at 8.75 per cent through a certificate of deposit.