Gilts rally on bank buying

Government securities rallied today on the back of heavy buying by nationalised banks who were sitting on the fence ever since the interest rates had started going up.

The 10-year benchmark 7.38 per cent 2015 closed at 6.46 per cent against a close of 6.53 per cent on Wednesday. "With inflation coming down, surplus liquidity and on further borrowing programme for the rest of the current fiscal, banks find it attractive to buy gilts at current prices," said a dealer.

Prices in the long term papers went up by Re 1, while in the medium and short term, prices moved up by 40-50 paise and 20-25 paise respectively.

The spot rupee, on the other hand, hit an intra-day low of 43.83 after opening at 43.68/69 owing to heavy dollar buying by public sector banks at the behest of the RBI.

"The rupee is overvalued at 104.5 as against the guarded band of 98-102 and therefore the central banks is heavily buying dollars to depreciate the rupee, said a dealer.

Earlier, intervention to reign the appreciating rupee could not be possible as inflation was very high and buying dollars would have resulted in additional rupee liquidity being generated in the system.

However, with inflation coming down, intervention is not an issue, said dealers.

However, forwards came off as exporters took advantage of the depreciating rupee to realise their receivables.