Liquidity comfortable, rupee opens higher

MONEY MARKET ROUND-UP

Forex: Re opens up
Tracking the global markets that recovered following the decision of Federal Reserve to cut discount rates, the Indian equity market opened higher on Monday.

Therefore the spot rupee opened higher at 41.12/13, partly due to forex inflows and partly owing to dollar sale by exporters as against a closing of 41.38/40 last week.

It reached an intraday high of 40.96 before sliding to a low of 41.25/26 following the equity markets that fell by 438 points on Tuesday.

However, exporter selling and hike in lending and deposit rate by Peoples' Bank of China led the rupee to recover and close at 41.09 for the day. The rupee recovered following the appreciation of all major Asian currencies against the dollar.

The surplus liquidity led the six-month and one-year forward dollars to close at annualised premiums of 1.45 per cent and 1.52 per cent, respectively.

The decision of the Peoples' Bank of China to raise lending and deposit rates for controlling inflation is expected to help the Asian markets to open higher and Asian currencies to appreciate on Wednesday and so will be the rupee.

Money: Liquidity surplus
Liquidity remained in surplus despite the RBI absorbed around Rs 10,000 crore under reverse repo "� a mechanism to absorb excess liquidity from the system.

However, the bids were far too less from the average absorption of Rs 25,000-30,000 crore absorbed last week. According to dealers, most of the banks maintained excess liquidity with themselves as a preparation for the reporting fortnight starting Tuesday.

Every reporting fortnight requires all the banks to maintain CRR balance with the RBI which is liquidity maintained with the central bank as a proportion of the deposits mobilised. Call rates closed around 6.20 per cent while banks borrowed funds at 5.75 per cent in collateralised lending and borrowing markets.

G-sec: Prices move up
The prices of government securities moved up by 10-15 paise across maturities following excess liquidity in the system. However, the sentiment remained bearish apprehending the impact of the subprime woes in the global markets.

The yield on the benchmark ten-year paper closed at 7.95 per cent as against 7.98 per cent last week. There was moderate trading in the market.

However, the market expects the RBI to auction 91-day and 182-day t- bill at a cut"�off yield in the range of 6.76 -6.80 per cent and around 7.25 per cent respectively on Wednesday.

OIS and corporate bonds: Lacklustre show
The corporate debt market remained lacklustre and the spread between the 10-year government security and triple-a corporate bond of similar maturity continued to remain around 170 basis points. There was no major change in the yields of the benchmark maturities as well.

While there were no major issuance of certificate of deposits, Shriram Transport- a non banking finance company, was scouting for quotes in the market to raise three year money at 10-11 per cent.

The overnight interest rate swap market also did not see much activity, nevertheless the OIS rates came down from last week. The 5-year and 1-year OIS rates came down to 7.54 per cent and 7.48 per cent as against 7.67 per cent and 7.58 per cent seen last week.

Global markets: Dollar charges up
Dollar continued to gain overseas against major currencies. Chinese central bank raised its benchmark one-year lending rate by 0.18 per cent to 7.02 per cent while one"�year deposit rate was increased by 0.27 per cent to 3.6 per cent to tame inflation.

While pound ruled around $.9744 ( $.9925), yen moved down to $114.03 ( $114.67). Euro moved around $1.35 ( $1.34).