Rupee ends up on high inflows on the upswing

MONEY MARKET ROUND-UP

Forex: Re on stronger ground
The foreign exchange inflows have resumed after the Securities and Exchange Board of India (Sebi) clarified its stance on participatory notes (P-Notes).

Spurred by the inflows, the BSE Sensex gained 784 points to touch a high of 20,024 points. The spot rupee which closed last weekend at 39.55/56 opened stronger at 39.38 to a dollar.

According to dealers, the rupee gained both due to forex inflows and also on cross-currency basis. The dollar has lost to major currencies due to poor Michigan consumer confidence data last week.

During the day, rupee hit a high of 39.35 before sliding to 39.47 on the back of dollar purchase by the Reserve Bank of India (RBI) in the forward market to stem rupee appreciation. The rupee closed at 39.43 to a dollar.

On the other hand, the annualised premiums on forward dollars inched up slightly due to dollar booking by the RBI as part of its market intervention plan. The RBI has been buying dollars in the forward market so as to postpone the infusion of rupee liquidity through these purchases to future.

The annualised premiums for the six-month and one-year forwards closed at 1.17 per cent and 1.13 per cent as against 1.10 per cent and 1.08 per cent last week.

Money: Call at 6%
Liquidity continued to remain in surplus as the fund absorbed by the RBI came down from Rs 39,000-40,000 crore last week to Rs 18,000 crore on Monday. The reduction in bids for parking liquidity under reverse repo is primarily due to outflows towards successive auctions of t-bills and dated securities last week.

Call rates closed at 6 per cent after hitting the lows of 4 per cent while interest rates in collaterlised lending borrowing market remained firm above 5 .5 per cent. According to dealers, there is a demand for banks to borrow from CBLO market at around 5.5/5.6 per cent and then parking it with RBI at 6 per cent, to earn an interest rate differential for intraday funds.

G-sec: Market remains flat
The market remained flat on the eve of the monetary policy review of the RBI on Tuesday. While the volume in the market was substantial, the price change was not much. Banks were buying at higher yields in anticipation of better gains post policy, since yield may come down.

The yield on the benchmark ten-year paper closed at 7.81 per cent as against 7.83 per cent last week. "The credit pick-up is slow and therefore there is an interest for the banks to build investment portfolio at the beginning of the third quarter," said a dealer.

The shorter end of the yield curve also remained flat since the yield on the one-year treasury bills was at 7.35 per cent.

OIS and corporate bonds: Lacklustre
The overnight interest rate swap market (OIS) remained lacklustre, ahead of the monetary policy review. Since the dealers refrained from taking positions, volumes were as low as Rs 5000-6000 crore against the average of Rs 10,000-15,000 crore daily.

The overnight interest rate swap market is a derivative product based on the underlying of the interest rate on the government securities. The benchmark maturity of 1-year and 5-year OIS closed flat at 6.97 per cent and 7.15 per cent against the previous closing of 7 per cent and 7.16 per cent respectively.

The corporate bond market witnessed brisk trading. Since credit offtake has been slow, banks might not issue more tier-2 paper. There is thus a huge demand for the existing papers, atleast the longer maturity ones.

This has compressed the spread between the 10-year government security and 10- year triple A corporate bond from 160-170 basis points to 140 bp. One basis point is one hundredth of a percentage point.

The SBI 15-year bond, with a 10-year call option, traded at 9.25 per cent as against the primary issue coupon rate of 10.10 per cent. Indian Railway Finance Corporation raised 10-year funds through bilateral placement of bonds with Life Insurance Corporation at 9.41 per cent and five year funds at 9.03 per cent.

Global markets: Yen loses out
Major currencies such as euro and pound continued to gain against the dollar. Pound and euro ruled at $2.0500 ($2.0606) and $1.4400 ($1.4300) respectively. However, the yen lost to the dollar and traded at $114.70 ($114.40).