Panic dollar sales fuel rupee

MONEY MARKET ROUND-UP

Forex: Rupee ends on a high note

The spot rupee opened weaker at 39.63/64 after closing on Wednesday at 39.58/59 to a dollar, tracking the weak global markets. But portfolio inflows and sale of dollar proceeds towards initial public offers, propped up the spot rupee.

Panic sale of dollars by exporters thereafter, led the spot rupee to an intraday high of 39.3650 before it closed the day at 39.49/50 a dollar.

According to dealers, another factor that drove up the rupee was subdued intervention by the Reserve Bank of India. Dealers pointed out that transactions took place even when the rupee was trading at a low of 39.25 to a dollar.

Companies were in a panic sale mode, offloading dollar proceeds, be it from external commercial borrowing loans, investment overseas or exports.

The sale of dollars in the forward market were countered by covering by importers, as dollars were booked for the future by paying rupee premium.

Thus, the annualised premium for six month and one year forward dollars closed flat at 1.17 per cent and 1.08 per cent respectively as against the levels on Wednesday.

Money: In surplus

Liquidity remained surplus due to RBI's increased intervention in the foreign exchange market and government expenditure. Even if the RBI absorbed funds to the tune of 13,000-15,000 crore from the system, it accepted surplus liquidity to the tune of Rs 58,000 crore on Thursday.

The call rates fell to a low of 4 per cent, but closed at 6.05 per cent. The interest rates in collateralised lending and borrowing market also fell to 4 per cent, but volumes in CBLO surpassed that of call market manifold.

While banks prefer to lend money to the RBI and earn 6 per cent, the non-banking players such as mutual funds and life insurance companies lend in the CBLO market against government securities acting as collateral. These non-banking players, who are also surplus in funds, cannot lend in the interbank call money market.

G-sec: Lacklustre trading

The market remained dull and lacklustre inspite of surplus funds as it apprehended either a 25 basis point hike in CRR or increased issuance of bonds and bills under market stabilisation schemes to absorb excess funds.

The finance minister stated on Wednesday that the MSS limit, which is currently at Rs 1,50,000 crore, may be hiked in case of a proposal by the RBI.

The prices hovered in a range of 3-5 paise across maturities and the yield on the ten year benchmark closed at 7.89 per cent as against 7.88 per cent on Wednesday. The yield on the one year paper closed flat at 7.40 per cent.

While the Kerala Government raised 10-year funds at 8.20 per cent as against 8.19 per cent last time, the RBI also announced on October 8 the sale of state government loans worth Rs 4972 crore for four states.

Corporate bonds and OIS: Dullness abounds

The overnight swap market also remained dull since interest rate view was uncertain. The yields on the benchmark maturities of 1-year and 5-year remained flat.

Volumes also remained low since the beginning of the week. Even if the market believed that liquidity will remain surplus, the RBI could push up the rates in the very short term by absorbing the excess money.

The yield has fallen across maturities in the corporate bond market, tracking the surplus liquidity. The rates have come down by 30-50 basis points in the longer term.

The bonds of rural electrification corporation, which were issued at 9.85 per cent for 10 years, are currently trading at 9.70 per cent.

Similarly, dealers pointed out that State Bank of India raised 10-year funds at 10.10 per cent through a perpetual bond, which is currently trading at 9.75 per cent.

Most of the banks have put on hold their long term borrowing plans in the primary market, including Syndicate Bank, Punjab National Bank, Bank of Baroda and Canara Bank. The players are waiting for cues from the October credit policy for taking a decision on the rates, said a dealer.

In the short term, State Bank of Hyderabad raised one year funds at 8.30 per cent as against 8.50 per cent a week back, while Cholamandalam Finance mobilised one year fund through commercial paper at 8.68 per cent.

Global markets: Euro and pound see a rally

Euro and pound rallied against dollar by ruling at $2.0343 ($ 2.0398) and $1.4109 (1.4186). Yen is at $ 116.58 ($116.24).