Money supply in a tight spot

The liquidity situation has been tight and is expected to remain so in the coming days. However, the government expenditure through disbursement of agricultural debt waiver funds after parliamentary approval, is a silver lining. The Reserve Bank of India infused funds worth Rs 18,640 crore under the repo route. Call rates continued to rule above nine per cent at 9.25 per cent.

G-sec: Declining prices

The prices of government securities fell by 25- 50 basis point across maturities. According to dealers, the banks are in a selling mode to create room for fresh investments for the auction of government securities to be held on August 8, 2008. The RBI will auction ten-year benchmark paper 8.24 per cent 2018 and 7.95 per cent 2032 for Rs 10,000 crore.

 

Dealers felt the yield of 9.02 may not be a comfortable for the market to bid for the paper since the short term rates are too high. The RBI auctioned 91 day T-bill and 182 day T-bill on Wednesday for 9.23 per cent and 9.29 per cent respectively.

The yield for the ten-year benchmark paper closed at a high of 9.10 per cent. However, there was good demand for treasury bills from custodian clients (foreign institutional investors) and other banks.

Forex: Rupee loss

Crude prices remained the single most important driver for the foreign exchange market. The spot rupee opened at 42.02 and rose to a high of 41.87 to a dollar. However since crude prices inched up from $119 a barrel to $121, the banks bought dollars fearing demand from oil companies. This led the spot rupee to close lower at 42.08.