Gilts Recover, Rupee Stable

Securities prices improved marginally by around 15-20 paise yesterday while forward premiums declined as the market took solace from the statements by Reserve Bank of India governor Bimal Jalan that interest rates were headed downwards and the cash reserve ratio would be cut when required.

The market yesterday factored in the cut in the repo rate. Call rates ruled at 5.75-6 per cent and closed between 5.5 and 6 per cent. The RBI received 25 bids for Rs 7,938 crore at the 6 per cent fixed rate repo.

The spot rupee was stable. The rupee opened at 39.72-73 against the dollar and touched an intra-day low of 39.7450 before closing at 39.71-73.

Forward premiums, which had increased on Wednesday following Reserve Bank of India's decision not to cut the cash reserve ratio declined marginally. Yesterday, the one-month premium closed at 3.47 per cent (4.02 % on Wednesday), the three- month at 5.20 per cent (5.39 per cent), the six-month at 6.77 per cent (6.91 per cent), and one year at 7.42 per cent (7.58 per cent).

Premiums were expected to increase because of increased paying pressure. Players were sitting on received position and they were expected to square up. Importers were also expected to come into the market. But given that RBI has signaled continuation of an easy interest rate regime, the initial concerns have subsided. Premiums are expected to decline further.

In the securities market, there was an increase in demand for securities and prices went up compared to Wednesday's levels. Soon after the policy was announced, prices had crashed by around Re 1 across maturities, as market expectations of a CRR cut were belied. However, the announcement of a repo rate cut to 6 per cent had a positive impact on market sentiments and a recovery was staged in the later part of Wednesday trading.

The recovery continued yesterday, but there was buying interest mainly in the long dated securities. The 13.05 per cent 2007 which was traded at RS 106.50 levels on Wednesday retraced to Rs 106.95 levels. The price of 11.75 per cent 2006 gilt went up by around 10 paise from morning trade to Rs 100.20. Some banks were also taking a position ahead of the auction of 10 year paper.