Re breaches 40 as banks buy $

MONEY MARKET ROUND-UP

Rupee: Down again
Rupee slipped below 40.0000 per $1 mark today because banks continuously bought dollars to meet the demand from importers on the last day of the current financial year, dealers said.

"Dollar has suddenly become cheaper, so importers are rushing to buy dollars. Also, they want to cover their exposure before the financial year-end. Importers may be having a view that the rupee may depreciate further," said Prabal Banerji, chief financial officer, Hinduja Group.

Rupee ended at 40.1150 per $1, down 23 paise, compared with 39.8800 on Friday.

Importers were said to have covered their financial year-end requirements, as they do not wish to roll over their contracts for the new year, said a dealer at an US bank.

The fall of over 4% in local share market also forced banks to buy dollars to meet the demand from foreign institutional investors.

"As local share market closed on a weak note, there were continuous bids from custodial banks due to the outflows from foreign funds," said a dealer at a private bank.

According to some dealers, dollar purchases were also done at the behest of Reserve Bank of India, thereby exerting further pressure on the rupee.

"Nationalised banks were continuously buying dollars around 39.9400-39.9600 per $1 level," said a dealer at a brokerage firm.

"Earlier today, nationalised banks halted the rupee's rise above 39.8000/$1," said the dealer with the US bank.

"Some banks also squared off positions as it is the year-end," said a dealer at a state-run bank. However, at weaker rupee levels, exporters took every opportunity to sell dollars, dealers said.

"The way things are moving I think the rupee below 40 per $1 is good level for exporters to sell dollars," said Vikas Goel, executive director, treasury, Calyon Bank.

Call rates: Close lower
The 2-day call rate ended down today aided by the Reserve Bank of India's liquidity infusion through an additional liquidity adjustment facility today.

The 2-day call rate ended at 6.50-7.00% today compared with 8.25-8.50% Saturday. CBLOs ended at a weighted average rate of 7.01% compared with 8.22% Saturday.

In order to meet the temporary mis-matches of banks on the last day of the financial year, RBI had announced an additional repo and reverse repo auction today.

"The extra LAF is helping in controlling the call rate today. RBI wants the call rate to move within the corridor," said a dealer at a state-run bank. Most banks were unwilling to lend funds today to maintain their capital adequacy ratio intact that pushed the call rate to 9.30% today. Today, the central bank infused Rs 56,800 crore through its morning repo tender compared with Rs 20,600 crore Friday.

G-sec: Yields rise
Government bond yields ended up 3-4 basis points today, extending Friday' losses, as investors pruned positions on fears of monetary tightening from the Reserve Bank of India in a bid to rein-in inflation.

"Inflation is a problem. The 10-year yield could cross 8% because of the heavy borrowing programme and if the RBI immediately announces any monetary action, it could go even higher," said Manoj Kumar Swain, director and head of trading, Standard Chartered Bank.

Volume was lower today, as most investors kept to the sidelines awaiting further cues on interest rates, dealers said.

A section of the market expects the RBI to hike the banks' cash reserve ratio to contain excess liquidity situation in the system.

"Liquidity should get better in April and for that a CRR hike could be announced soon," said a senior treasury official with a primary dealership. CRR was last hiked on Nov 10, 2007 and is currently at 7.50%.

Fear of monetary tightening has gained momentum in the market after inflation rate for week to Mar 15 surged to a 59-week high of 6.68%, as against 5.92% in the week ago period. The Finance Minister P. Chidambaram and RBI deputy governor Rakesh Mohan on Friday had expressed concern over the spurt in inflation and some steps have been announced by the government to control the supply side pressure on inflation.

Trade Minister Kamal Nath today said the Cabinet panel on prices is likely to announce a number of fiscal measures including import duty cuts on many food items and ban on exports to ensure higher supplies. The RBI was aiming to contain inflation around 5% in the current financial year that ends today.

The other negative for the market is the front-loaded auction supply, dealers said, which is worth Rs 20,000 crore scheduled for April alone.