Recap : Omo Auctions, Reporting Friday Counter Cash Pile
Call money stayed in the 5.60-5.85 per cent band last week as the banking system continued to be deluged by funds.
Average bids at the daily repo auctions last week was lower at Rs 11,248 crore compared with around Rs 20,000 crore in the week before last on account of the open market operations (OMO) auction conducted by the Reserve Bank of India (RBI), and reporting fortnight considerations.
In the five days of the reporting week (August 5-9), the central bank received bids aggregating Rs 56,240 crore (Rs 1,05,090 crore in the previous week - July 29 to August 2) and accepted bids amounting to Rs 42,027 crore (Rs 84,071 crore).
On reporting Friday (August 9), the RBI received only three bids amounting to Rs 2,970 crore at the three-day repo auction. It accepted these at a cut-off rate of 5.75 per cent.
"Banks were cautious in bidding at the repo auctions last week as the central bank conducted OMO sales twice and sucked out Rs 7,000 crore from the liquidity filled banking system," said a dealer with a public sector bank.
At the Rs 3,000 crore OMO auction of the 11.75 per cent 2004 paper held on Tuesday (August 6), the RBI received 51 bids for Rs 3,640 crore. It accepted 24 bids for the notified amount.
The cut-off price for the paper was set at Rs 109.47, translating into a yield of 6.26 per cent. Dealers felt that the OMO was just a signal that the RBI wants to stem the sharp fall in gilt yields.
The RBI conducted another OMO on Friday (August 9) of the 7.37 per cent 2014 paper and the 8.35 per cent 2022 paper. It received 104 bids amounting to Rs 3,303 crore at the 2014 paper auction and accepted 53 bids for a notified amount of Rs 2,000 crore.
A cut-off price of Rs 100.56 was set, tantamount to a yield of 7.2960 per cent. At the auction of the 2022 paper, the central bank received 96 bids for Rs 4,281 crore and accepted 60 bids for the notified amount of Rs 2,000 crore at a cut-off rate of Rs 106 (yield: 7.7498 per cent).
Liquidity drove the prices of government securities higher in the first three days last week. Then they fell on Thursday and Friday, but nudged up by around 10 paise on Saturday on value-buying by some investors and traders.
Dealers expect the sentiment to be cautious after RBI governor Bimal Jalan on Friday said that the central bank's open market operations were meant to absorb excess liquidity and ensure stability in the market.
The yield on the benchmark 10-year bond ended on Saturday at 7.23 per cent as against Friday's close of 7.2240 per cent.
The rupee ended the week stronger at 48.64/6450 to a dollar on the back of huge dollar inflows from exporters and lack of importer demand. It ruled in a tight band of 48.64-48.67 to a dollar on Monday, dipped by seven paise on Tuesday to 48.71/72. From Wednesday onwards the rupee continued to appreciate against the dollar.
Forward premiums edged higher on expectations of a rate cut by the US Federal Reserve and the RBI governor's comment that a rate cut by the Fed will not necessitate a bank rate cut. The six month annualised forward premium, which was at 4.39 per cent on Monday, ended the week at 4.66 per cent.
Meanwhile, India's foreign exchange reserves rose to $60.148 billion in the week ended Aug 2 from $59.867 billion in the previous week, the Reserve Bank of India (RBI) said in its weekly statistical supplement on Saturday.