Gilts may dip on fears of SLR cut

WEEKLY MONEY MARKET

Government bonds ended up last Friday, but gave up some of the intraday gains towards the end of trade as fears of a cut in banks’ statutory liquidity ratio (SLR) prompted investors to trim their portfolios.

The observations in the Reserve Bank of India’s Annual Report for 2007-08 (July-June), which said the regulatory norm on SLRs was distorting the development of the government securities (G-sec) market, sparked fears among bond traders.

Banks have to invest 25 per cent of their net time and demand liabilities in government securities and a cut in SLR will mean a lower demand for gilts. On Monday, dealers expect bonds to open weaker because of the fear of an SLR cut that may prompt investors to offload gilts.

 

The yield on the 8.24 per cent, 2018 paper is seen in a band of 8.65-8.80 per cent.

Rupee: In a range
The rupee ended weak against the dollar last Friday as banks persistently bought the greenback to meet the month-end demand from oil companies and other importers. The Indian currency ended at Rs 43.93 to a dollar last Friday compared with 43.78 on the previous day after moving in a range of 43.70-43.96.

The rupee may move in a range of 43.50-44.25 to a dollar over the next 15 days, a dealer of a foreign bank said.

“The pressure on the rupee may continue due to weak fundamentals and constant (dollar) demand from oil companies,” a head of treasury of a medium-size foreign bank said. There was strong buying by some oil companies around 43.82-43.84 towards the end of Friday’s trade,” said a dealer of a state-run bank.

Noting the consistent demand from oil companies and other importers, banks rushed to cover their short dollar positions, weakening the Indian unit further against the greenback in the last few minutes of trade.

If there are good inflows in the latter half of the financial year, the rupee may appreciate. The rupee may move in a range of 43.50-44.25 to a dollar over the next 15 days, a dealer of a foreign bank said.