Rupee recovers from low

MONEY MARKET ROUND-UP

Liquidity: Tightening hold
The liquidity tightened in the system as a fallout of the advance tax outflows. The Reserve Bank of India infused around Rs 44,000 crore into the system under repo. Repo is the mechanism through which banks infuse liquidity into the system by selling government papers.

Call rates at which banks lend and borrow from the market for their daily requirements shot up to a high of 9 per cent during the day since banks had to provide for liquidity for the next three days since the different centres are shut on different days.

Even if the settlements happen on March 24 and 25, the transactions will take place depending on the centre that is open, said a dealer.

The rates in collateralised lending and borrowing market, the parallel market for non-banking entities, also ruled very tight. Mutual funds, the usual lenders, remained cautious following redemption from banks towards advance taxes.

G-sec: Under pressure
There was acute selling pressure in the market following the approaching holidays.

"Since the sentiment is bearish and the prime minister has signalled no interest rate cuts at this point of time, no one wants to carry any positions in government papers next week, said a dealer.

Prices of government papers fell by 20-30 paise across maturities, while the yield on the benchmark ten year paper closed at a high of 7.63 per cent. The yield on the long term benchmark paper 8.33 per cent 2036 rose to a high of 8.13 per cent as against 8.08 per cent on Tuesday.

There was aggressive bidding for treasury bills, especially 182 day t-bill, said a dealer. The RBI today announced a cut- off rate of 7.31 per cent for the 91 day t-bill and 7.53 per cent for 182 day t-bill as against 7.39 per cent and 7.53 per cent at the earlier auctions respectively.

OIS: Rapid fire
There was brisk trading in the overnight interest rate swap market since the market expected the liquidity to ease next week. This will start happening once the government expenditure starts, said a dealer.

Yields in the three month segment fell from 7.25 per cent to 7.11 per cent and declined by almost 9 basis points in the highly traded one-year segment. All other segments witnessed falls in the yields by 5-6 basis points.

In the OIS market, banks struck deals to receive fixed rates and pay floating rates on the interest rate liabilities. Overnight interest rate swap market is a derivative product based on the underlying of interest rates on the government securities.

There were slew of primary issues of long term bonds and certificate of deposits from the banks.

According to dealers, banks did not want to defer their liquidity requirement to next week since it closes with the financial year end. No one knows the extent of liquidity tightness in the system, they added. Power Finance Corporation paid 9.40 per cent for five year paper and State Bank of Bikaner and Jaipur offered 9.37 per cent for 10 year tier-II issue.

Rupee: Rangebound
The spot rupee opened at 40.42/43, but fell to a low of 40.52 during the day following the heavy demand from the oil companies. It closed flat at 40.42/43 to a dollar.

Annualised premia for six month and one year forward dollars closed at 1.64 per cent and 1.21 per cent respectively.