Banks' $ buying hits Re

MONEY MARKET ROUND-UP

Liquidity: Secure zone
The liquidity in the inter-bank money market remained comfortable. However, the call rates remained around 6.5 per cent, above the reverse repo rate, on expected outflows of funds in bond auction.

The one-day call rate for two-day loans ended at 6.50-6.60 per cent compared with 6.20-6.30 per cent on Saturday. Liquidity is comfortable and is expected to remain this way for the remaining week" a dealer with large public sector bank said. The total traded volumes in the call market were 23,770 crore today.

Most banks prefer to meet most of their reserve needs for the fortnight in the first week itself. Today, the Reserve Bank of India absorbed Rs 6,700 crore at its liquidity draining reverse repo tender, sharply down from Rs 10,300 crore on Friday.

Some dealers attributed the fall in bids at reverse repo to "over-maintenance" of products by few banks in first half of the fortnight. CBLOs were traded at a weighted average rate of 6.20 %, up from 4.89 % on Saturday.

The call money rate may open firm around 6.70-6.80 % tomorrow (Tuesday) as demand is expected to stay strong. But despite the good demand for funds, equitable distribution of liquidity amongst banks may prevent a sharp rise in call rates.

Dealers do not expect the call rate to rise above 7 % on Tuesday.

RBI may receive only a nominal amount at its reverse repo tender because banks may prefer to lend in call money market to earn better returns. CBLOs are seen in 5.50-6.50 % band.

G-sec: Day of declines
The benchmark bonds declined on speculation that debt auctions this week will push the yields higher.

The notes ended two days of gains after the government tripled the size of the offer to Rs 16,500 crore from last week. The sales include treasury bills. The supply is big and will be accommodated only if present trading positions are reduced, said a trader with small private sector bank.

The yield on the most traded 7.99 % due July 2017 rose 1 basis point to 7.51 %, according to the RBI's trading system.

The total trading volume in the government paper was Rs 3,220 crore. The 7.99 % bond saw largest volume at Rs 1,215 crore.

The government will auction Rs 9,000 crore debt on February 8 as part of its annual borrowing programme. It will also sell Rs 4,000 crore of two-year securities under the market stabilisation programme on February 08 to prevent surplus cash from stoking inflation. It sold Rs 30 billion of such securities last week.

Forex: Greenback in demand
The rupee ended lower against the US dollar as custodial banks persistently bought the greenback to meet foreign institutional investors' demand in the wake of refund of application money post-share allotment in Reliance Power's initial public offer. The rupee ended at 39.4500 against the dollar.

The foreign banks were buying dollars on account of outflows from foreign funds to refund Reliance Power IPO. Some banks also short covered dollar positions in late trade, said a trader with foreign bank.

A large US bank and a UK bank were said to have been major buyers of dollars today," said a dealer at a brokerage firm.

Refunds to foreign institutional investors that had invested in the Reliance Power public issue led to the dollar demand. Dealers estimate about $6-$8 billion will move out of the system due to the refunds.

The annualised premia for six month and one year forward dollars closed at 3.10 % and 2.90 %.