Reserve Bank of India measures boost liquidity

MONEY MARKET ROUND-UP

Liquidity: In surplus
Liquidity remained comfortable with RBI absorbing around Rs 14,000 crore from the system. The government expenditure and intervention by RBI in the foreign exchange market to stem the rupee appreciation remained the main source of liquidity for the market.

In the past few days, RBI has not been contracting sell-buy swaps since the system has been short of liquidity. Thereby any purchase of dollars by RBI is resulting in infusion of the rupee liquidity in the market.

Call rates, at which banks lend and borrow funds from the market for their daily requirement, ruled higher at 6.90 per cent even after reaching lows of 5.50 per cent.

According to dealers, call rates firmed up since banks were cautious on liquidity on the eve of announcement of the monetary policy review on Tuesday.

The money stuck with the seven banks that are managing the initial public offer of Reliance Power is yet to come back to the system. Rates in the collateralised lending and borrowing market (CLBO) also ruled higher since mutual funds lent with caution, fearing redemption in their portfolio till liquidity eases.

G-sec: Lacklustre
Trading in the government securities (G-sec) market remained lacklustre since most of the dealers were absent from the market. Most of the market participants are overseas attending a conference organised by the Fixed Income Money Market and Derivatives' Dealers' Association (FIMMDA).

Volumes remained low at around Rs 5,120 crore and the market witnessed a heavy selling pressure towards the end of the trading session. Since the outcome of the monetary policy review to be held on Tuesday is not certain, traders do not want to build positions, said a dealer.

Prices ruled in a narrow range of 10-15 paise and remained flat in the shorter end of the maturity. The yield on the benchmark ten-year paper closed at 7.45 per cent as against 7.39 per cent last week. Similarly, the yield on the 91-day T- bill ruled around 7 per cent.

OIS and corporate bonds: Brisk trade
Since the outlook on the interest rate remained uncertain and dealers were sceptical of a repo rate cut in the monetary policy review on Tuesday, yields in the overnight interest rate swap market firmed up. Across maturities, yields firmed up by 2-4 basis points.

Banks struck deals wherein they paid in fixed rate of interest and received in floating rate of interest. The overnight interest rate swap (OIS) market is a derivative product based on the underlying of the interest rate on government securities. In the one-year segment, which witnessed brisk trading, yields firmed up from 6.59 per cent to 6.63 per cent.

The corporate bond market also saw lacklustre trading with yields ruling flat. In the longer end of the maturity, the yield on the triple-A bonds for a ten-year maturity ruled around 9-9.05 per cent.

In the shorter end of the maturity, there was selling of commercial papers and certificates of deposits by mutual funds, which have remained liquid fearing redemption.

Rupee: Ends up
The spot rupee opened at 39.43 to a dollar, but tracking profit-taking and consequent sell-off in the equity market, it fell to 39.49.

At these levels, exporters heavily sold dollar receivable at least in the near term of one or two months. This led the spot rupee to close at 39.38-39 to a dollar.

The annualised premia for six-month and one-year forward dollars closed at 2.15 per cent and 1.7 per cent respectively.