Tight liquidity raises borrowing costs for firms

MONEY MARKET ROUND-UP

Outflows from the forex market and preparation for the reporting fortnight on Friday resulted in the market witnessing tight liquidity conditions.

Some banks such as the State Bank of Bikaner and Jaipur and Corporation Bank, which raised one-year funds through certificate of deposits at 9.80 per cent, had to pay 11 per cent during the end of the trading session for mobilising funds.

However, dealers said that even at 11 per cent, the banks found it difficult to get funds.

Power Finance Corporation announced its plan to raise funds for three, five and seven years at 10.85-10.50 per cent.

Liquidity squeeze was also evident in the overnight interest rate swaps. The yields across maturities (one to five years) have gone up by 18-25 basis points since banks struck deals for paying fixed and receiving in floating rate of interest.

 

The overnight interest rate (OIS) swap is a derivative product based on the underlying of interest rate on the government securities.

G-sec: Yield dips

The prices of government securities rallied in the first half of the trading session expecting good liquidity to come from forex inflows. The yield on the benchmark ten-year paper fell to a low of 8.82 per cent as against a close of 8.91 per cent on Monday.

However, the market witnessed profit booking towards the end of the day and the prices fell across maturities by 20 paise-Re 1. The yield on the 10-year benchmark rose and closed at 8.98 per cent.

Liquidity: Call at 9.30%

Liquidity was tight and the Reserve Bank of India had to infuse around Rs 30,000 crore into the market. According to dealers, banks were preparing for the reporting fortnight on Friday and raising deposits apprehending credit pick up in the second quarter.

Call rates at which the banks lend and borrow funds from each other for their daily requirement shot up above 9 per cent and closed at 9.30 per cent.

Dealers expect liquidity to improve following government expenditure in few days

Forex : Dollar surges

The spot rupee opened at 42.17/19 amid bullish sentiments. However, dollar appreciation globally triggered outflows from the Indian market. Following dollar buying by foreign banks and demand from oil companies, it fell to an intraday low of 42.45/46 before closing at 42.37/39.