Rupee closes flat on RBI intervention

MONEY MARKET ROUND-UP

Liquidity: Zone of comfort
The liquidity remained comfortable due to government expenditure and intervention by the RBI to curb the appreciation in the rupee dollar exchange rate.

The Reserve Bank of India (RBI) absorbed around Rs 11,000 crore from the market and the call rates ruled at 6 per cent. Call rate is the interest rate paid by the banks for lending and borrowing funds from the market for their daily requirement.

The collateralised lending and borrowing rates (CBLO), where funds are availed against government securities as collateral, fell further to 5.75 per cent.

Most mutual funds are flush with funds and are lending to non-banking finance companies engaged in funding the upcoming initial public offers.

G-sec: Vertical moves
The prices in the government securities market went up by 20-40 paise across maturities.The yield on the benchmark ten year paper closed at 7.57 per cent as 7.54 per cent last week.

Banks bought government securities as the RBI is expected to scale down the amount in the scheduled government borrowing programme next week. The government had borrowed excessively in June 2007 for purchasing RBI's stake in State Bank of India.

Moreover, the US yields have softened following fears of recession and hints on further Fed rate cuts. The yields have fallen to 3.90-3.94 per cent from 4.87 per cent some weeks back.

However the rates remained flat at the shorter end of the yield curve. The yield on 364 day t-bills was 7.27 per cent.

OIS: Placements galore
The corporate bond market witnessed numerous placements of commercial papers and MIBOR-linked non convertible debentures from NBFCs, which are involved in funding the upcoming initial public offers.

As a result, banks are finding it difficult to raise funds through certificates of deposits. A dealer explained that while banks are offering 8.6-8.70 per cent for one year funds, the NCDs and CPs of the NBFCs are quoting at 13-14 per cent for 15-30 days.

Most of these NCDs are reset on a daily basis as the interest rates are pegged to MIBOR- Mumbai interbank offered rate. It makes these NCDs money market instruments since MIBOR in itself is benchmarked to the call rates.

The interest rates on OIS have come down across maturities, with the one year to five year OIS ruling below 7 per cent.

Brisk trades happened in the one year segment, whereby the rates declined from 6.80 per cent to 6.75 per cent. Banks struck deals to receive in fixed rate of interest and pay in floating rate since they feel the rates to come down following liquidity.

Overnight interest rate swap market is a derivative product based on the underlying of the interest rate on the government securities.

Re: Rangebound moves
The spot rupee remained rangebound by opening at 39.28-29 and closing at the same levels.

According to dealers, even if the market was aflush with inflows, RBI intervened aggressively to curb the rupee appreciation.

The sell buy swaps made by RBI to book dollars mopped up from the spot market to be bought at a future date pushed up the premia on the forward dollars.

As against closing of 1.51 per cent and 1.28 per cent for six month and one year forward dollars, the premia for these maturities shot up to 1.94 per cent and 1.61 per cent.

International markets: Yen on a high
Carry trades pushed up the yen against major currencies. It traded at around $107.39 as against 109 last week. The euro and pound weakened to $1.4894 and $1.9628 respectively.