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Liquidity: Drying up
The liquidity has started drying up after two tranches of hike in cash reserve ratio (CRR) and auction of government securities both as part of borrowing programme and market stabilisation scheme to suck out surplus liquidity.
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| The RBI had hiked the cash reserve ratio by two tranches of 25 basis point each on April 17 and the second tranche comes into effect on May 9. CRR is a portion of the total deposit mobilisation over a fortnight which is kept with the RBI as a statutory requirement.
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| The Reserve Bank of India absorbed only around Rs 4270 crore from the market as against a daily average of Rs 40,000 crore last week.
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| Call rates at which the banks lend and borrow funds from each other went up to 6.40 per cent as against a low of 4.50 per cent last week. Banks started mobilising resources rather than lending in the call money market.
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| Mutual funds continue to be flush with funds, but have now become cautious in lending to the market on fears of redemption from banks. The rates in the collateralised borrowing and lending market have also gone up to 6.35 per cent as against lows of 2/2.50 pr cent last week.
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Bonds: Rising rates
Apprehending shortage of dollars, banks rushed to mobilise funds in the corporate bond market through certificate of deposits. Following a bearish outlook on the short term liquidity, the interest rates on CDs have gone up. State Bank of India paid 8.75 per cent for one year funds which would have been 8.5/8.6 per cent last week. Rates for other associate banks of SBI and other PSU banks including Vijaya bank ranged between 8.85 and 9.10 per cent. ICICI Bank raised one year funds at 9 per cent. Overnight interest rate swap market is a derivative product based on the underlying of the interest rate on the government securities.
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Rupee: Weakens further
The spot rupee touched a one-year low of 42.11 on the back of heavy dollar demand from oil and non oil importing companies and lack of supply.
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| According to dealers, the high crude prices have hastened the dollar buying spree of oil companies. On the other hand, most banks had bought dollars expecting the spot rupee dollar rate to rebound and appreciate once it reaches 41.80, which unfortunately did not happen. On its way to 42, most of the dollar rupee positions of banks ran into losses and banks also joined the race for buying dollars to cover their open positions.
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| The spot rupee opened at 41.62 and reached a high of 41.58 before hitting a low of 41.11. At these levels, exporters started covering their long term dollar receivables and thus the rupee managed to close at 42.00, said a dealer.
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| Most oil importing companies bought dollars and they were later joined by non oil importers as well, clarified a dealer.
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| Since payment was made in rupees for booking forward dollars and the limited selling of dollars in the forward market, the annualised premia also went up. The premia for six month and one year forward dollars closed at 1.57 per cent and 1.31 per cent as against 1.21 per cent and 1.11 per cent respectively last Friday. |
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