Rupee closes weak on dollar buying by importers

MONEY MARKET ROUND-UP

Liquidity: Situation of tightness
Call money rates ended at 6.75 per cent today as liquidity continued to be tight. Though rates moved between 6.25-8.00 per cent, most trades took place close to repo rate (7.75 per cent), according to Reserve Bank of India data.

The strong demand for funds from banks also kept call money rate high today. Banks usually step up borrowings in the first week of the reporting fortnight to meet their reserve needs for the two weeks, dealers said.

Banks borrowed Rs 8,245 crore from the RBI under liquidity adjustment facility (LAF) to meet their daily reserve needs compared with Rs 12,135 crore yesterday. CBLOs ruled at the average rate of 7.70 per cent up from 7.68 per cent clocked yesterday.

G-secs: On a high
Government bond yields closed higher today due to selling by investors following the tight liquidity conditions. The most-traded 7.99 per cent, 2017 paper (of Rs 100) closed at 7.92 per cent yield-to-maturity today, compared with 7.89 per cent yesterday.

The trend of call money rates hovering above RBI's repo rates is a clear indication of cash shortfall in the system, dealers said.

RBI did not accept bids in monetary stabilisation scheme portion (Rs 2,500 crore) of T-bill auction for 91-day and 182-day paper, reflecting the tight liquidity conditions.

It however accepted bids for regular auction of Rs 1,000 crore.There is belief in the market that government may not sell government bonds under MSS until liquidity improves.

Forex: Premia moves up
The rupee fell for the ninth day in a row on speculation that importers bought dollars for month-end payments. Importers such as Indian Oil are buying dollars to pay for imports as crude oil prices climbed to a record high this month.

The rupee fell to its lowest in more than a month on concerns that higher oil crude prices will inflate India's import costs, widening trade and current account deficits, dealers said.

The rupee fell to 39.80 against the dollar at the 5 pm close in Mumbai from 39.79 yesterday.

In its annual banking report, the RBI has pointed out that gains in crude oil may affect India's currency and current account deficit.

The annualised premia for six month and one year forward dollars moved up to close at 1.06 per cent and 0.91 per cent respectively.