Reserve Bank intervention continues; gilt prices rise

MONEY MARKET ROUND-UP

Rupee: RBI buys dollars

The spot rupee touched a new nine-year high to close at 39.3150 to a dollar. While the equity market reached an all-time high of 18,658 points, the portfolio investors - foreign institutional investors are learnt to have invested around $700-800 million into the market, said a dealer with a custodian bank.

Backed by inflows, the spot rupee opened stronger at 39.34/36 against a closing of 39.44/45 to a dollar on Tuesday. The Reserve Bank of India also intervened to purchase dollars and cool down the rupee appreciation but inflows were far in excess to purchases made by the RBI.

However, a dealer maintained that the spot rupee could have breached the crucial barrier of 39, had the RBI not intervened in the market.

Meanwhile, there was aggressive covering of future dollars in the forward market. Oil companies, struck by the rapid rise in crude prices, rushed to cover their import payments and this pushed up the premium on future dollars. The importer has to pay a rupee premium to book dollars for a future date, otherwise called forward dollars.

"We have to cover our refining margining which are pegged to rupee-dollar exchange rate. While we gain in making payments following the rupee appreciation, the balance-sheet of a oil company is equally hit since the refinancing margin shrinks with rupee appreciation.

Therefore, one has to wait for a lucrative level, said a senior official with a oil importing company. The six-month and one-year annualised premium closed at 1.36 per cent and 1.40 per cent against 1.26 per cent and 1.30 per cent respectively on Tuesday.

Money : Fund surplus continues

The liquidity remained in surplus, driven by intervention of the central bank in the foreign exchange market and government expenditure. The central bank purchases dollars and in the process releases equivalent rupees into the system.

The RBI absorbed around Rs 60,000 crore from the system. Call rates closed below 6 per cent at 5.75 per cent. Incidentally, call rates fell to a low of 4 per cent, while in the collateralised lending and borrowing market, rates remained rangebound at 5.50-5.75 per cent.

Dealers explained that banks remained cautious in lending ahead of auction of dated securities and, therefore, there were borrowers in the non-banking market of CBLO.

G-sec: Cut-off lifts prices

The market perked up with the aggressive cut off yield in the auction of 91-day and 364-day treasury bills. While 91 day t-bills were sold at a cut-off rate of 6.98 per cent, 364 day t-bill was available at 7.37 per cent against 7.14 per cent and 7.52 per cent respectively in the previous auctions.

Prices of government papers went up by 10-15 paise across maturities and the yield in the benchmark ten year government paper closed at 7.90 per cent against 7.92 per cent on Tuesday.

According to dealers, banks will be dealing in government securities given the excess liquidity situation and beginning of the third quarter. Another reason that is triggering investment in government securities is the slow pick-up in advances.

OIS and corporate bonds: Rates stay ranged

The interest rates in the overnight swap market remained rangebound. Overnight interest rate swap market is derivative product based on the underlying of the interest rate on the government securities.

The OIS remained lacklustre since most of the activity was concentrated in the underlying government securities market . Dealers explained that most banks, which struck deals on Tuesday with the outlook of falling interest, unwinded and booked profits.

This is because the deals on Tuesday were done by paying floating and receiving floating. Since the yields fell on Wednesday these deals turned profitable, explained the dealers. There were no fresh positions taken.

Corporate bond market witnessed a sharp fall in yields of certificate of deposits . One-year CDs of Oriental Bank of Commerce and Canara Bank, which were issued at 8.30 per cent on Tuesday got traded at 8.10/8.15 per cent on Wednesday.

Similarly, there were primary issues of one-year CDs of Punjab National Bank and associates of State Bank of India at 8.20/8.26 per cent. However, at the end of the trading session, the rates fell to 8/8.10 per cent.

While there was lacklustre trading in the long term segment, the market nevertheless witnessed some primary issues. Infrastructure Development and Finance corporation (IDFC) was seen scouting for quotes to raise two-year funds at 8.80 per cent.

State Bank of Hyderabad proposes to raise funds through perpetual bonds of 15 years with a call option at the 10th year at 9.75 per cent . A week aback, the rates were ruling at 10/10.10 per cent.

International markets: Dollar on the rise

Dollar continued to gain against major currencies like Euro , GBP. Euro ruled at $ 1.4160 ($1.4035), while GBP is at 2.0430 ($2.0284). yen gained marginally to dollar and hovered at $117.32 ($117.20).