Liquidity in surplus, Re slips

MONEY MARKET ROUND-UP

Money: Call rates end higher
There was surplus liquidity even if the bids received under the reverse repo came down to Rs 7,000 crore as against more than Rs 10,000 core last week. This is on account of an outflow of around Rs 7,000 crore towards twin government security auction on last Friday.

Call rates marginally closed higher at 6.30 per cent as against 6.20 per cent last week. CBLO rates ruled lower at 4.82 per cent where funds are available on collateral of government securities.

G-sec: Market recovers
Since the RBI did not announce any government security auction to absorb excess liquidity under the market stabilisation scheme, the gilts market recovered with buying demand. The prices of government papers moved up by 10-15 paise across maturities and the yield of the benchmark ten-year paper closed at 7.91 per cent.

However, the RBI has increased the amount to be auctioned under the 91-day t-bill to Rs 3,500 crore as against the usual Rs 2,000 crore.

Forex: Re slips on oil firms' dollar rush
The spot rupee opened higher at 40.93 after closing at 41.07/08 on last Friday following the recovery of global market indices that allayed fears of outflow of funds.

However, during the day, oil companies rushed to buy dollars to make the month end payments which pushed down the rupee to close at 41.02 after reaching to an intraday low of 41.05.

The market may witness dollar demand on Tuesday as well from the oil companies which is likely to pull down the rupee since foreign exchange inflows are highly restricted.

Premiums on forward dollars closed lower with the six-month and one-year forward dollars at 0.89 per cent and 1.23 per cent as against 1.45 per cent and 1.53 per cent, respectively, on last Friday.

OIS and corporate bonds: Bearish outlook
The yield curve in the corporate bond market has flattened with the one-year fund at 9.50 per cent and 10-year fund at 9.80 per cent.

"This reflects the bearish outlook on short-term liquidity wherein the markets feels that funds will be expensive since there are no additional supply of funds into the market. While foreign exchange inflows have taken a backseat due to global aversion to risk on emerging markets, the government expenditure is limited.

Call rates at which funds are available to banks for daily fund management might reach 8 per cent soon, said a dealer. Power Finance Corporation has postponed the issue while Indian Railway Finance Corporation and Nabard to tap the market on Tuesday.

While IRFC will raise Rs 216 crore, Nabard has kept the amount open. There are not many issues in the short term as most of the issuers, primarily banks are waiting for the rates to stabilise.

Global markets: Rates blues
Overseas markets feel that at the monetary policy meeting on September 6, both the European Central Bank and Bank of England may raise rates.

While this led to appreciation of the euro and the pound sterling against the dollar in the weekend, encouraging home sales and durable data from the Federal Reserve reversed the trend.

As a result, the euro and the pound lost to dollar by ruling around $1.3655 ($1.3685) and $2.0134 ($0193), respectively. The yen also gained to dollar by figuring around $116.01 ($116.43).