RBI intervention injects more Re

MONEY MARKET ROUND-UP

Money: Liquidity eases further

There was abundant liquidity in the banking system, generated primarily through increased intervention of the Reserve Bank of India (RBI) in the foreign exchange market to stem the rupee apprehension.

The RBI intervened by purchasing dollars, resulting in excess rupee in the system. Besides, government expenditure would bring back outflows towards the advance tax payments.

Call rates fell to 5 per cent intra-day and closed at 6.10 per cent. The rates in the collateralised lending and borrowing market (CBLO) slid to a low of 3 per cent where banks could borrow funds against the collateral of government securities. The RBI absorbed Rs 30,400 crore from the market under the reverse repo mechanism.

G-sec: Dull trade hits market

The government securities market remained dull and prices remained flat during the day. "Even if there is abundant liquidity in the market, the market fears that the RBI may either continue with increased issuance of MSS bonds or hike CRR to absorb excess liquidity," said a dealer.

Lacklustre trading led to rising yields in the shorter end of the yield curve while the longer end of the curve remained flat. Prices for the short and medium-term papers fell by 3-5 paise. The yield on the short-term papers has gone up to 7.45/7.50 per cent as against 7.40 per cent last week.

The yield on the ten-year benchmark paper closed at 7.90 per cent.

OIS: Volumes jump

The overnight interest rate swap (OIS) market recorded huge volumes to the tune of Rs 20,000-25,000 crore. Overnight interest rate swap is a derivative product based on the underlying interest rate on the government securities.

There was brisk trading for OIS swap wherein the dealers first entered into deals to receive floating rate and pay fixed rate.

During the day they winded up the positions and booked profit when the yields rose . Some banks also entered into deals to hedge their floating portion of the market portfolio.

The deals happened with the outlook that going forward interest rates will come down since liquidity is going to remain comfortable even if the RBI hikes CRR or increase issuance of MSS.

Corporate bond market also witnessed healthy volumes, both in the shorter end and longer end of the maturity curve. Volumes in the secondary long term bond market figured at Rs 150-200 crore while the market for certificate of deposits and commercial papers witnessed volumes of around Rs 1,000-15,000 crore. There was brisk trading in long-term bonds of State Bank of India, Power Finance Corporation and Nabard.

Fresh issues under certificate of deposits was seen from the associate banks of State Bank of India and Punjab National Bank.

Banks could raise funds for three month and nine month at 7.70 per cent and 8.20 per cent as against a peak of 8.40 per cent and 8.60 per cent seen few weeks back.

Global markets: Euro at all-time high against dollar

The euro reached a new life-time high against the dollar at $1.4281. It hovered around $1.4224 during the day. The pound rose to $2.0492, but corrected to around $2.0490. The Japanese yen was at 115.81.