Rupee closes down at 42.88

MONEY MARKET ROUND-UP

Re: Slips on $ buys

The spot rupee was well balanced between dollar demand from foreign institutional investors and oil companies and dollar sales by the Reserve Bank of India.

FIIs are pulling out of the equity market and repatriating dollars, said a dealer with a foreign bank.

Besides being bearish on the Indian equity market, the fast depreciation rupee against dollar is another reason for FIIs pulling out. "This, in turn, is making FIIs pay more rupees for dollars," said a dealer.

This triggered dollar buying by foreign banks which made the spot rupee to open weaker at 42.79/80 after closing on Monday at 42.73/74. Shortly after opening, the rupee fell to 42.95 since the foreign banks bought dollars worth around $500 million.

At these levels, there was heavy dollar selling by the Reserve Bank of India which is expected to be around $1 billion, said a dealer. This brought the rupee-dollar rate to around 42.85, closing at 42.88 following heavy dollar buying by oil companies.

The Sensex, barometer for the equity market, has shed around 5.5 per cent over a week since last Tuesday.

Tight liquidity conditions in the rupee market put pressure on the cost of rupee funds. As a result of this the annualised premiums on the six-month and one-year forward dollars closed at a high of 2.23 per cent and 1.67 per cent, respectively, compared with 1.96 per cent and 1.47 per cent on Monday.

Corporate bonds: Rates on the rise

With liquidity situation likely to tighten further, most of the banks and companies have started mobilising funds. This in turn has pushed up interest rates for certificate of deposits issued by banks to raise funds.

As against an interest rate of below 9 per cent for one-year fund a fortnight back, Vijaya Bank raised one-year funds at 9.15 per cent. State Bank subsidiaries "� State Bank of Mysore and State Bank of Patiala raised six-month money at 8.75-8.85 per cent. In the secondary market, CDs of Karnataka Bank got dealt at 9.30 per cent for one year.

Since the rates are uncertain, there was no issuance of long-term bonds. According to dealers, the issuers are on a wait and watch mode.