Rupee ends weak on dollar buying, gilts rise

MONEY MARKET ROUND-UP

The rupee erased all gains and ended lower against the US dollar as banks bought the greenback on behalf of oil companies and other importers. It also weakened after a finance ministry official said the government may alter the cap on the external commercial borrowings spread without easing other ECB norms.

Some banks bought dollars following these reports on expectations that the limit on ECBs may not be hiked, which could reduce chances of dollar inflows.

The Indian currency ended at 42.16, down from 42.06 on Friday, after moving between 41.90 and 42.22 today.

The rupee had opened on a positive note today following the sharp fall in crude oil prices. The crude oil price dropped almost 20 per cent to $116.29. Since the past week, the crude prices have given up over $5.

Dollar sales by exporters also helped the rupee to gain in early trade.

Meanwhile, the over 2 per cent rise on Dalal Street also prompted banks to sell dollars on expectations that inflows from foreign funds may emerge. However, the inflows were mild today, dealers said.

Three UK-based banks were said to be buying dollars around 41.91-42.03. A large private bank was reportedly buying dollars.

Some banks also covered their short dollar positions following comments by a senior finance ministry official that the interest rate spread for ECBs could be relaxed, but there may not be any immediate plan to relax other norms for ECBs.

Gilt: Rising prices

The government bond prices rose by almost three-quarters of a rupee today after the weakness in crude oil price boosted sentiment and prompted investors to spruce up their portfolios, dealers said.

The 10-year benchmark 8.24 per cent, 2018 paper ended the day at Rs 95.70 or 8.9078 per cent yield-to-maturity compared with Rs 94.97 or 9.0259 per cent on Friday.

The total traded volume in gilts and treasury bills rose to Rs 95 billion today from Rs 41 billion on Friday.

However, the 2018 paper did give up some of its intraday gains as a few preferred to book profits eyeing the recent sharp price.