The government securities market is reeling under bearish sentiment apprehending monetary measures such as a hike in CRR or repo rate hike by the Reserve Bank of India prompted by high crude prices.
The cash reserve ratio is the portion of the total deposits garnered by banks over a fortnight and deposited with the RBI as a statutory obligation. Out of the total funds to be maintained, a bank needs to maintain atleast 70 per cent on any given day of the fortnight.
Prices of government papers fell by 30-50 basis points across maturities and the yield on the benchmark ten year paper closed at 8.28 per cent as against a closing of 8.23 per cent last week.
Similarly, the yield on the long-term benchmark security 8.33 per cent 2036 closed at a high of 8.66 per cent as against 8.50/8.55 per cent last week. Volumes in the government securities market hovered around Rs 3100 crore.
Liquidity: Restricted lending
The liquidity in the system is comfortable, but the concern on rate hike and preparations for advance tax payments towards the end of this week led to restricted lending by the banks.
Funds were neither absorbed from, nor infused into the system. Another reason for banks to be reluctant towards lending is the preparation for maintenance of CRR in the beginning of the fortnight.
Call rates at which banks lend and borrow from each other for daily fund requirements fell to a low of 5.50 per cent before rising to a high of 7.10 per cent to close. The higher rates factored all the concerns in the system, said the dealers.
The rates in the collateralised borrowing and lending rates (CBLO) market went up to a high of 7.75 per cent since mutual funds, one of the major lenders in this market, feared redemption from banks. Mutual funds, on the other hand, were seen selling government papers since they were reducing losses on the portfolio where the yields have substantially gone up, said a dealer.
Rupee: Weak close
The spot rupee opened weaker at 42.94/95 against a closing of 42.67 last week, following weak sentiment in the global markets, high crude prices and high inflation in India. However, the selling of dollars by the Reserve Bank of India to stem the rupee depreciation helped it to close at 42.87/88 to a dollar.
The annualised premia for six month and one year forward dollars inched up since the cost of rupee funds went up after factoring in fears of liquidity tightening in he rupee market. The annualised premia for six month and one year forward dollars closed at 2.62 per cent and 2.15 per cent as against 2.26 per cent and 1.90 per cent last Friday respectively.
