Call ends high at 8%; Re hits 1-month low

MONEY MARKET ROUND-UP

Liquidity was tight in the market and banks increased their borrowings to meet mandated reserve requirements at the beginning of the reporting fortnight.

A sudden spurt in demand towards the fag end of trade exerted more upward pressure on the call rate, dealers said. The one-day call rate ended at 7.90-8.00 per cent, up sharply from 5.85-6.00 per cent on Friday for the three-day reserve needs.

"System is short by Rs 5,000-10,000 crore. So, people (banks) who were desperate to meet daily reserve needs after not accessing the Reserve Bank of India's (RBI) repo ended up paying higher rates, analysts said. Today, RBI did not receive any bids at its reverse repo and repo tenders. CBLOs were dealt at weighted average rate of 7.17 per cent today, sharply up from 5.18 per cent on Friday.

Call rates are expected to hover in 7.00-7.75 per cent till Friday, dealers said. Some easing in call rate could be seen on Friday, as around Rs 8,400 crore will flow back into banks through coupon payments and Treasury bill redemptions.

Dealers also hope the government spending at the end of the month may aid in further easing of liquidity conditions.

G-sec: Robust trade
The volume in government securities (G-sec) was around Rs 3,325 crore. Maximum trading was seen in the long-term and medium paper.

The government bonds were steady on Monday as auction outflows made sentiment edgy about fund levels in the banking system, while higher overnight rates discouraged fresh positions by investors.

The yield on the 10-year bond ended at 7.89 per cent, unchanged from the previous close. "There is little sign that cash levels could improve this week and the key factor would be whether the Reserve Bank rejects bids again on Wednesday's Treasury bill auction," a dealer of a foreign bank said.

RBI is scheduled to sell Treasury bills worth Rs 3,500 crore on Wednesday. Last week, it had announced an auction for Rs 4,000 crore, but rejected bids for Rs 2,500 crore under the Market Stabilisation Scheme (MSS).

The MSS bonds are sold by the central bank to drain cash generated due to its intervention in the currency market. Since late October, the Reserve Bank of India has rejected bids for MSS bonds in the T-bill auction, which traders say could be because of lower intervention due to downward pressure on the rupee from equity-related outflows.

Meanwhile, some eleven investors have exercised put for 6.72 per cent government bonds 2012, amounting to Rs 885 crore.

Forex: Re drops
The rupee closed at over a one-month low against the dollar due to continuous dollar purchases by custodial banks as foreign institutional investors (FIIs) repatriated dollars.

"There was buying by custodial banks. They short-covered dollar positions towards the end," said a dealer with public sector bank said.

The Indian unit ended at 39.79 to a dollar compared with 39.69 on Friday. The rupee hit an intra-day high of 39.5650 today.

The currency had risen nearly 10 paise in early trade today on expectation of inflows from foreign institutional investors and exporters. There were high hopes on the local share market opening in the green.

The annualised premia for the six-month and one-year forward dollars closed at 0.82 per cent and 0.76 per cent.