Frenzied one-way move saw bond prices soaring by nearly 1 rupee on expectations that headline inflation rate would ease sharply below last week’s level of 12.40 per cent. Analysts saw Thursday’s buying spree as a perfect example of “exaggerated bullishness”, something outgoing Reserve Bank of India Governor Y.V. Reddy warned interest rate markets about.
“A tight monetary policy cannot let bond market rally beyond a point. This may prove to be counter productive to RBI’s policy stance,” said Mohan Shenoi, treasurer, Kotak Mahindra Bank.
Shenoi also said there is a possibility of a “verbal intervention” to market players from the central bank against such a drastic one-way move. The most-traded 10-year, and the benchmark 8.24 per cent, 2018 bond ended at Rs 98.48 or 8.4715 per cent yield-to-maturity compared with Rs 97.61 or 8.6074 per cent on Tuesday.
Call: Firm close
Call money rate ended almost steady on Thursday, compared with Tuesday. It closed at slightly over 9% amid good liquidity condition and firm demand, dealers said. The one-day call rate ended at 9.10-9.15 per cent, compared with Tuesday’s close of 9.00-9.10 per cent for two-day loans. On Thursday, most of the deals took place at 9.10 per cent. The weighted average call rate fell to 9.08 per cent from 9.15 per cent on Tuesday.
There was less borrowing on Thursday owing to inflow of around Rs 28 billion through coupon payment on government bonds.
Liquidity has eased slightly, as indicated by banks’ borrowing at the Reserve Bank of India’s repo tender.
Rupee: Pares losses
Rupee erased all its losses and ended up against the US dollar on Thursday because banks sold the dollars accumulated over the last two days noting the fall in offshore non-deliverable forward rate, dealers said.
The Indian unit ended at Rs 44.3700 per dollar after touching an intraday low of Rs 44.5300. It had ended at Rs 44.4200 per dollar on Tuesday. Most banks sold dollars noting the bunched-up inflows of two days - with the US markets shut on Monday, while on Wednesday the Indian markets were closed on account of Ganesh Chaturthi.
