Re gains as Sebi data shows FIIs bought more shares than they sold on May 28 and 31.
A day after the conclusion of the 3G auction process, the net borrowing by banks from the Reserve Bank of India (RBI) under the liquidity adjustment facility (LAF) doubled to Rs 12,775 crore from Rs 5,575 crore yesterday. However, bankers said the liquidity situation was not as tight as expected with call rates falling below the 5 per cent mark before markets closed for the day.
Volumes in the money market fell. The rates also fell marginally. The weighted average rate in call money markets fell to 4.99 compared to 5.13 yesterday.
In the collateralised borrowing and lending obligations space — also accessed by mutual funds, insurance companies, bond houses and non-banking finance companies — the overall volume was estimated at Rs 39,086 crore against Rs 45,600 crore yesterday, according to data on the Clearing Corporation of India website.
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THE SQUEEZE IS ON | |||
| Date | Amount parked via reverse repo | Call amount | Call rate |
| 21-May | 47,530 | 139 | 2.50-3.85 |
| 24-May | 4,540 | 12,541 | 2.50-4.20 |
| 25-May | 8,890 | 8,433 | 2.50-4.20 |
| 26-May | 5,685 | 8,879 | 2.50-4.20 |
| 28-May | 6,215 | 352 | 2.75-4.30 |
| 31-May | -3,710 | 11,362 | 2.80-5.30 |
| 1-Jun | -5,575 | 9,409 | 2.90-5.40 |
| 2-Jun | -12,775 | 6,377 | 2.50-5.40 |
| Since May 31 banks have availed of funds via the repo route and are net borrowers during the liquidity adjustment facility operations Amount in Rs cr, rate in % Source: RBI, Clearing Corporation | |||
According to RBI data, banks were net borrowers to the tune of Rs 6,925 crore in the first LAF auction and Rs 5,850 in the second LAF auction.
“The liquidity situation should improve over the week. Government spending usually increases during the end of the month and we should see more cash flowing into the system. There is also a reporting Friday coming up,” said a senior executive of Axis Bank.
Bankers said the impact had already been felt on short-term lending rates, which had increased by at least 25 basis points for loans coming up for reset or renewal.
Hinduja Group CFO Prabal Banerjee, however, said the company had adequate liquidity to tide over the problem, which, he said, was likely to persist for a while. “We plan our borrowings in a way that there are no shocks,” he said.
In order to ease the liquidity squeeze, RBI will conduct two reverse repo and repo auctions until July 2. Banks can also avail of additional liquidity support under LAF to the extent of 0.5 per cent of their net demand and time liabilities until then.
Rupee rises as stock gains temper fund outflow concern
The rupee strengthened for the first time this week as gains in the nation’s stocks tempered concern overseas that investors are pulling out money.
The currency, which fell the most in 15 months yesterday, rebounded as data from the Securities and Exchange Board of India showed foreigners bought more shares than they sold on May 28 and May 31, following nine days of net sales. The benchmark Sensitive Index rose 1 per cent after a government report yesterday showed the economy grew 8.6 percent last quarter, accelerating from 6.5 per cent in the prior three months.
The rupee advanced 0.4 per cent to Rs 46.98 per dollar as of the 5 pm close in Mumbai, according to data compiled by Bloomberg. The currency slumped 1.7 per cent yesterday, its biggest decline since February 17, 2009. The rupee dropped 4.3 per cent in May, the worst performance among Asian currencies after South Korea won.
Bonds gain as RBI may slow rate increases on Europe woes
The bonds rose on speculation that the central bank will refrain from raising interest rates before its next policy meeting in July as Europe’s debt crisis threatens to damp the global economic recovery.
Yields on 10-year notes fell to their lowest level in a week after the European Central Bank said in a May 31 report the region’s banks might have to write off $237 billion of bad debt by 2011. Reserve Bank of India (RBI) Deputy Governor Subir Gokarn said last month rates would be tightened at a “cautious” pace because of Europe’s fiscal troubles.
The yield on the 7.8 per cent note due May 2020 fell one basis point to 7.5 per cent as of the 5:30 pm close in Mumbai, according to the central bank’s trading system. The price rose 0.08 per Rs 100 face amount, or 8 paise, to Rs 102.06.
Call rate at 5%
Call money rate ended marginally lower, but continued to trade around the repo rate of 5.25 per cent as banks met their reserve needs amid skewed liquidity, dealers said.
One-day call rate closed at 5-5.1 per cent as against 5-5.25 per cent on Tuesday.
“Call rate remained firm on Wednesday as banks were reluctant to lend in the market ahead of Reporting Friday. Call rate may continue to remain in the 5-5.4 per cent band,” said a dealer with a state-owned bank.
Skewed liquidity was evident from bids received at the twin liquidity adjustment facility tenders on Wednesday. RBI received Rs 570 crore at the reverse repo tender and Rs 13,345 crore at repo tender.
“Liquidity is expected to remain tight until June 15 because of corporate advance tax outflows. We may see call rate around the same level till then,” said a dealer with another state-owned bank.
In order to ease the liquidity squeeze, RBI will conduct two reverse repo and repo tenders until July 2. Banks can also avail additional liquidity support under the LAF to the extent of 0.5 per cent of their net demand and time liabilities until July 2.
Collateralised Borrowing and Lending Obligations (CBLOs) ended down at a weighted average rate of 5.22 per cent, as against Tuesday’s close of 5.24 per cent.
