Call money rates ruled easy last week in the 5.60-5.85 per cent band despite the Reserve Bank of India (RBI) sucking out liquidity by conducting open market operation (OMO) sales and daily repo auctions.
Prices of government securities saw a liquidity-led rally on Friday and Saturday, with medium-tenor papers moving up around 60 paise and long-term ones rising by as much as Rs 2. There was light demand for overnight funds last week, as participants covered their reserve requirements in the week before (the first half of the reporting fortnight).
The Reserve Bank of India (RBI) sucked out Rs 89,674 crore through daily repo auctions (conducted Monday through Friday) last week.
That the banking system was awash with liquidity can be gauged from the fact that the RBI received bids aggregating Rs 1,06,850 crore at the repo auctions last week.
As part of its liquidity mop-up operations, the central bank held an OMO sale on July 23 for the 11.98 per cent 2004 paper and the 11.90 per cent 2007 paper. It raised Rs 3,500 crore through this auction.
Then it held an OMO sale for the 8.07 per cent 2017 paper, where it is believed to have mopped up in excess of Rs 1,000 crore.
Though OMO sales led the participants to adopt a cautious tack in the government securities market, there was a good rally towards the close of the week.
According to a money market dealer, the abundance of liquidity in the banking system is due to the RBI intervening in the forex market, albeit indirectly, through the public sector banks (PSBs), thereby releasing rupees into the system.
With the dollar ruling weak against major global currencies, exporters liquidating their dollar receivables (as there is no sign of the rupee depreciating), and weak demand for greenback from importers, the RBI is fortifying the forex reserves, the dealer added.
Foreign exchange reserves of the country in the week ended July 19, 2002, shot up by $817 million. Outstanding forex reserves as on that date stood at $59.606 billion.
Since the beginning of this financial year, there has been an accretion of $5.5 billion to India
