Rupee closes flat on RBI intervention

MONEY MARKET ROUND-UP

Interbank call money rate ended above the Reserve Bank of India's repo rate today as liquidity continued to be tight. The strong demand for funds from banks also ensured that the call rate remained steady.

The one-day call rate ended at 7.80-7.90 per cent, compared with 7.90-8.00 per cent on Monday. The cash situation is tough, with most banks borrowing from RBI, dealers said.

Today, banks borrowed Rs 12,100 through RBI's repo tender, an indication of the tight liquidity in the banking system. Barring some improvement in liquidity last week, banks have remained net borrowers since the 50-basis point hike in the cash reserve ratio came into effect from November 10.

Some dealers said that sharp fluctuations in the repo and reverse repo rates have created confusion among banks about the liquidity situation.

"No one is really aware of where liquidity stands, which in turn is helping in keeping the call rates high," said the dealers. The CBLOs were traded at a weighted average of 7.68 per cent, sharply up from 7.17 per cent on Monday.

Liquidity is expected to ease towards the end of this week, mainly due to month-end spending by the government. Coupon payment and redemption of treasury bills worth Rs 8,400 crore could also ease the liquidity situation.

Government securities: Weak close
Government bonds shed all intra-day gains to end down today as investors preferred to sell bonds as the cash supply situation showed no signs of easing out.

Tight liquidity is preventing the investors from holding on to their positions in bonds, a trader with state-owned bank said. Reserve Bank of India governor Y V Reddy's comment on the inflation risk from the rising global oil and food prices impacted trading.

The central bank is maintaining extraordinary vigilance on the global environment, which is marked by volatility, and the global uncertainties are unlikely to be resolved soon, Reddy said in his address at bankers conference in Mumbai.

The 10-year benchmark 7.99 per cent, 2017 paper closed at Rs 100.59 or 7.8992 per cent yield-to-maturity after hitting an intraday high of Rs 100.74 or 7.8771 per cent. The 2017 paper had settled at Rs 100.64 or 7.8917 per cent on Monday.

Gilt prices had jumped up in opening trades as market participants bought bonds following the rise in US Treasuries on Monday.

Dealers said another reason for the lacklustre trade is the fast approaching yearly closure of account books for foreign banks. These banks trade heavily in gilts. Foreign banks will close their account books for the calendar year 2007 on December 31.

Forex: Steady inflows
Rupee ended almost flat at Rs 39.79/80 against the US dollar on reports of Reserve Bank of India's active role in weakening the value of Indian currency.

Dealers said the capital inflows were steady and the central bank was pushing the rupee off an intra-day peak of 39.72.

At least two large state-run banks were selling dollars on behalf of their customers. But when the rupee started moving towards 39.70, the banks reversed their bids and started buying dollars. When the central bank intervenes, it does so through state-run banks.

The sell-off in equity is also influencing the rupee.

The annualised premia for six month and one year forward dollars moved up to close at 1.02 per cent and 0.84 per centre respectively.