Rush for dollars sends rupee to 17-month low

MONEY MARKET ROUND-UP

The spot rupee fell to a 17-month low of 43.70 against the dollar after opening weaker at 43.07, compared to the closing of 43.00 last week.

According to dealers, there was acute shortage of dollars as the market remained shallow after a long weekend. The country’s largest public sector bank, State Bank of India did not participate in money and forex market operations due to a strike across its branches.

Once the spot rupee started depreciating, there was lot of interest from participants in the non deliverable forward markets (NDF) in Hongkong, Taiwan and Singapore. Forward dollars for any maturity are available in these markets at a premium to the Indian spot market values. And, unlike the Indian market, deals are settled on a net basis and not based on actual delivery. The net payment is the difference between the agreed forward exchange rates and the subsequently realised spot rate.

 

Banks bought dollars on account of their bearish view on the rupee. Since oil is hovering around $113 a barrel, the importers bought dollars for import payments. The dollar appreciation overseas also pulled down the spot rupee on the back of cross-currency movements. The spot rupee closed at 43.57/59 after touching an intraday low of 43.70.

In the forward market, banks received rupee premia from the exporters who booked dollar receivables. Accordingly, the annualised premia for six month and one year forward dollars closed lower at 3.45 per cent and 2.93 per cent as against 4.16 per cent and 3.36 per cent respectively.

G-sec: Buying demand

There was buying demand in the market and the price of benchmark ten year paper 8.24 per cent 2017 went up by 50-60 paise. According to dealers, the activity was concentrated only in the benchmark papers in the medium and long term segments. The yield in the ten-year paper fell from highs of 9.14 per cent last week to 9.08 per cent.

However, there was not much activity in treasury bills and short-term segment. Dealers said that the notified amount for the auction of government paper scheduled to be held this week was below the market expectation of Rs 10,000 crore and stood at Rs 6000 crore.

OIS: Thin trading

The overnight interest rate swap market remained lacklustre since the trading interest was thin. There was a movement of 2-3 basis points in the yields across maturities. Overnight interest rate (OIS) swap market is a derivative product based on the underlying of the interest rate on the government securities.

Liquidity remained tight since the market players covered for two days. The RBI had to infuse around Rs 34,725 crore into the market under repo for two days. Repo is the mechanism through which the banks infuse liquidity into the market.

Call rates, at which the banks lend and borrow funds from the market for their daily requirements, closed above 9 per cent at 9.60 per cent.