Reserve Bank absorbs Rs 18K cr

MONEY MARKET ROUND-UP

Liquidity: Surplus mode
The liquidity in the system continued to remain surplus. The Reserve Bank of India absorbed around Rs 18,000 crore from the system.

The hike in cash reserve ratio (CRR) comes into effect from April 26 and the system will thus remain in surplus mode till then, said a dealer.

Call rates fell to a low of 2 per cent before closing the day at 5.75 per cent. The mutual funds are flush with funds and thus the collateralised borrowing and lending obligation (CBLO) rates fell to a low of 1.10 per cent.

The government expenditure and the RBI's intervention in buying dollars to stem the rupee appreciation are the major source of revenue for the markets.

G-sec: Mixed trends
Even as the RBI hiked the CRR by 50 basis points in two tranches, the government securities market remained bullish as it had already discounted the hike.

The yield on the benchmark ten-year paper closed at 8.19 per cent. A new ten-year paper was auctioned by the RBI and this could now set the benchmark for the market. The new paper was auctioned at a cut-off yield of 8.24 per cent, lower than market expectations.

This also improved the market sentiment, said dealers. Even the 8.33 per cent 2036 paper was auctioned at a cut-off yield of 8.76 per cent, which was lower than market expectations. The yields at the shorter end of the maturity however inched up following concerns on liquidity, after the CRR hike comes into effect.

OIS: Light trading
There were no primary issues in the corporate bond market since the issuers would wait for the RBI's annual policy review, said a dealer. The interest rates will remain volatile till then, with an upside bias.

There were stray deals for medium and long term bonds in the secondary market. The 5-year issue of Power Finance Corporation was trading at 9.70 per cent, which was higher than 9.50/55 per cent seen in the previous weeks.

Rupee: Ends weak
The spot rupee opened strong at 39.83/84 since the foreign banks sold dollars to raise rupee resources. The concerns on rupee liquidity surfaced following the hike in CRR, that comes into effect from April 26 in two tranches.

However, the RBI intervened and bought dollars so as to stem the rupee appreciation. The rupee closed the day at 39.97/98 to a dollar.

Following the apprehension of rising cost of rupee funds as a consequence to the hike in CRR by RBI last week, the cost of rupee premium to be paid for booking dollars for future went up sharply. The premium on six month and one year forward dollars shot up to 3.06 per cent and 2.35 per cent as against a closing of 2.65 per cent and 1.9 per cent last week.