Re closes flat on RBI move

MONEY MARKET ROUND-UP

Triggered by the Fed rate cut and consequent deluge of forex inflows into the market, the spot rupee opened stronger at 39.23/25 after closing at 39.33 to a dollar on Wednesday.

"Though the opening was the intraday high in the spot rupee dollar exchange rate, the rupee eventually weakened but marginally due to RBI intervention", said a dealer.

The RBI aggressively bought dollars from both the spot and forward markets to curb the rupee appreciation throughout the day, accordingly to dealers. This led the spot rupee to close at 39.31/32 to a dollar, which was around the same level as Wednesday.

The annualised premia on forward dollars was rangebound and six month and one year forward dollars fetched a premia of 1.42 per cent and 1.18 per cent respectively.

Money: Surplus liquidity continues
The liquidity position was surplus, despite the RBI absorbing around Rs 11,560 crore from the market. After the hike in cash reserve ratio kicks in from November 10, it will suck out the excess liquidity from the system, according to dealers.

The hike in CRR will be aided by a string of auctions of dated securities and treasury bills under the market stabilisation scheme slated through the week.

CRR is a statutory requirement, wherein the banks have to park a portion of the deposits mobilised, with the RBI. The call rates closed at 6.10 per cent, but fell to a low of 4 per cent. The rates in the CBLO market remained high at 5.5 per cent.

Dealers explained that while the banks could borrow from the call markets, non-banking players flocked to the collateralised lending borrowing market to borrow against the collateral of government security, so as to remain liquid.

The banks were willing to borrow below 6 per cent in the CBLO market and park the funds with the central bank at a repo rate of 6 per cent.

G-sec: Bearish undertone
The government securities remained bearish since there was greater concern on the state of liquidity . The prices of government papers fell by 10-15 paise across maturities and the yield on the benchmark ten year paper closed at 7.85 per cent as against 7.84 per cent on Wednesday.

There was lacklustre trading in the short-term papers and the yield on the one-year T- bill continued to hover around 7.50 per cent.

The RBI auctioned two dated securities - 5.87 per cent 2010 and 11.30 per cent 2010 for a total amount of Rs 6000 crore under market stabilisation scheme.

While 5.87 per cent 2010 fetched a cut off yield of 7.73 per cent as against 7.60 per cent last week, 11.30 per cent 2010 got old at 7.98 per cent as against 7.73 per cent. Incidentally, both the papers fetched a lower yield in the secondary market where 5.87 per cent 2010 got traded at 7.71 per cent and 11.30 per cent 2010 at 7.76 per cent.

OIS and corporate bonds: Dull trade
A lack of view on the interest rate and concern on liquidity led to lacklustre trading in the overnight interest rates swap (OIS) market.

The benchmark maturity of one- and five-year maturities witnessed rates rangebound at 7.18 per cent and 7.22 per cent respectively. The OIS market is a derivatives product based on the underlying of the interest rate on the government securities.

Similarly, the activity in the corporate bond market also remained lacklustre since banks were concerned over the liquidity in the system after the 50 basis points hike in the CRR.

As against a whopping volume of Rs 39,443 crore on Wednesday, the market witnessed thin volume of Rs 9,000 crore.

The yields firmed up on benchmark papers wherein the 10- year bond of State Bank of India was traded at 9.53 per cent as against 9.51 per cent on Wednesday, while the 5-year Nabard paper was at 9.23 per cent as against 9.17 per cent.

Global markets: Pound rises
The pound rose sharply against the dollar and was at $2.0809 ($2.0798). The euro weakened to $1.4425 (1.4488) and the yen was at $115.83 ($115.43).