Call rates rise past 7%

MONEY MARKET ROUND-UP

Liquidity: Rush for funds
The overnight call money rate ended firm today because a few banks stepped up borrowings to meet their reserve needs for the reporting fortnight, which ends on Thursday.

"Some banks had expected the call rate to ease today. But since this did not happen, these banks were forced to borrow at a higher rate as you have to meet the reserve criteria no matter what," said a dealer of a state-run bank. Markets will remain closed on Friday for the Bakri-Id festival.

Call rates: End high
The one-day call rate ended at 7.65-7.75 per cent, up from 7.30-7.40 per cent on Tuesday. According to the Clearing Corporation of India reporting platform, a stray deal of Rs 500 crore was done at 8 per cent today.

Dealers also said the CBLO rate that hovered around the 7-8 per cent band through most part of the day prevented any fall in the call rate.

Despite the advance tax outflows during this week, money market players believe that liquidity is only marginally tight and will ease from the next week due to the month-end government spending. Since Monday, RBI has injected less than Rs 100 crore through its repo tender, an indication of only a minor shortfall in cash supply.

Today, RBI for the second consecutive day accepted a sole bid of Rs 5 crore at its cash-draining reverse repo tender. CBLOs were dealt at a weighted average rate of 7.47 per cent today, up compared with 7.11 per cent on Tuesday.

Call rates could open near RBI's repo rate on Thursday, as banks will step up borrowings to meet the four-day reserve requirements. However, a rise in the call rate beyond 7.75 per cent in the early trade is unlikely, as banks will have the option to borrow from RBI's repo window until 10:30 am.

In addition, banks will receive around Rs 12,800 crore from the redemption of the 91- and 364-day T-bills that may prevent a runaway rise in the call rate. CBLOs are expected to move in the 7.25-8.00 per cent band.

G-sec: Yields flat
Amid tight liquidity, trading in government securities remained cautious with a volume of Rs 3,785 crore. The yields across the maturity curve remained flat with the ten-year benchmark security closing at 7.88 per cent.

Bankers added that since the market was bracing towards a string of holidays, no bank was willing to take fresh positions. If the prices fall further, there might be some interest on the part of banks to pick up papers since investment activity by the banks have gone up due to a slowdown in the credit offtake.

The shorter end of the yield curve also remained tight with the 364-day treasury bill closing at 7.65 per cent. RBI auctioned the 91- and 364-day treasury bills for a total amount of Rs 1,500 crore. It does not involve any issuance for the Market Stabilisation Scheme (MSS).

MSS is the mechanism used by RBI to suck out excess liquidity from the market through issuance of bonds and bills. The cut-off yield in the 364 day T-bill was 7.66 per cent.

Rupee: Heads south
The rupee fell on speculation that oil companies sold the currency to raise foreign exchange required to pay for crude shipments from abroad.

Refiners such as Indian Oil Corporation may have sold the local currency after it rebounded from near the lowest in two weeks earlier today.

Gains in the cost of crude oil and India's increasing imports of the commodity are boosting domestic oil firms' demand for foreign exchange. The South Asian nation meets three-quarters of its energy needs through imports.

Oil companies have been buying the dollar after the rupee opened higher today and that stripped the rupee of its morning gains, according to a dealer at a foreign bank.

The rupee fell 0.1 per cent to 39.58 to a dollar as of the 5 pm close in Mumbai. The currency rose as high as 39.46 earlier.

Its 12 per cent gain this year is the second-best performance among Asian currencies after the Philippine peso.

The annualised premia for the six-month and one-year forward dollars closed at 1.64 per cent (1.73 per cent on Tuesday) and 1.26 per cent (1.25 per cent).