Rupee gains in a see-saw market, liquidity in surplus

MONEY MARKET ROUND-UP

Forex: A volatile day
The spot rupee-dollar exchange rate remained volatile tracking the equity market. Since the equity market crashed by 1,000 points in the beginning of the trading session, the spot rupee opened weaker at 39.80 after closing for the day at 39.34/35 to a dollar on Tuesday.

It moved down to 39.94, but recovered to close at 39.54 following heavy dollar sales by exporters.

Dealers are of the view the move of the market regulator to curb inflows is aimed at stopping speculative funds. The rupee strength will continue once the equity market stabilises.

Panic sales of dollars by exporters brought down the rupee premiums paid for booking dollars. The annualised premiums for the six-month and one-year forwards closed at 1.31 per cent and 1.08 per cent as against 1.62 per cent and 1.29 per cent, respectively, on Tuesday.

Money: Call closes at 6.05%
Liquidity remained in surplus but market was concerned about the outflows. The RBI today absorbed around Rs 29,000 crore.

In the coming days, there would be an outflow of around Rs 10,000 crore towards dated security auction and from the equity market as well, said a dealer. The interbank call rates fell to a low of 3.75 per cent but closed at 6.05 per cent.

The collateralised lending and borrowing market witnessed demand from mutual fund which witnessed redemption.

According to dealers, most of the redemption came from foreign banks which act as custodian for the foreign institutional investors that issue participatory notes.

The Securities and Exchange Board of India (Sebi) has decided to put a ban on the fresh P-Notes in a draft proposal on Tuesday.

G-sec: Prices remained flat
The government securities market remained flat since the outlook on liquidity was bearish. The market is also bearish on account of the interest rate outlook and is waiting for cues from the monetary policy review to be held on October 30.

Prices of government securities remained flat and the yield on the ten-year benchmark paper closed at 7.92 per cent as against 7.91 per cent on Tuesday.

Yields went up in the shorter end of the yield curve since the outlook on short-term liquidity is extremely bearish. The market feels that the medium-term foreign exchange inflows will continue, but for the time being inflows will wait for the equity market to stabilise and the Sebi's final order on the status of participatory notes.

The bearishness reflected in the cut-off yield at the auction of the 91-day and 182-day t-bills by figuring at 7.14 per cent and 7.45 per cent as against 7.10 per cent and 7.32 per cent, respectively, in the previous auctions.

OIS and corporate bonds: Rates to rise
With liquidity becoming a concern, dealers expected it to push up interest rates at least in the shorter end of the yield curve.

A lot of banks struck deals by paying in fixed and receiving floating rates which pushed up interest rates in the one-year maturity of the overnight interest rate swaps. Overnight interest rate swap market is derivative product based on the underlying of the interest rate on government securities.

The OIS rates in the one-year segment moved up from 7.03 per cent on Tuesday to 7.09 per cent. However, the yield remained almost flat in the 5-year segment by ruling around 7.30 per cent as against 7.29 per cent on Tuesday. There were moderate volumes in the OIS market to the tune of Rs 10,000-15,000 crore.

In the corporate bond market, yield tracked government securities. While there was not much action in long-term bonds, the shorter end of the maturity witnessed yields moving up, State bank of Patiala raised 11-month funds at 8.25 per cent which was available at 8.10/11 per cent on Tuesday, said a dealer.

Global markets: Dollar strengthens
As per the US data released on Tuesday, US Industrial production increased 0.1 per cent in September after having been unchanged in August.

For the third quarter as a whole, industrial production rose at an annual rate of 4 per cent, almost 1/2 percentage point faster than in the previous quarter, said the release.

Given this, all three major currencies "� the euro, the pound and the yen lost to the dollar. The euro and the pound figured at $1.4198 ($1.4145) and $ 2.0373 ($2.0306). The yen fell to $117.01 ($116.70).