Rupee jumps on Fed Reserve rate cut, liquidity improves

Money Market Round-Up

Forex: Re at 9-yr high
The spot rupee opened stronger by 20 paise on Wednesday compared with a closing of 40.48 on Tuesday, tracking the global equity markets. Most of the markets moved up after the Fed cut rate by 50 basis points in the FOMC meeting on September 18. The cut was a signal towards the efforts of the Federal Reserve to combat the subprime crisis and restore financial stability. On the other hand, interest rates became attractive in the emerging markets, including Indian markets, which lured inflows. The Indian equity markets rose to an all-time high of 16,322 points. Thus foreign exchange inflows and bullish sentiment led the spot rupee to close at a nine-year high of 40.20 to a dollar. Oil companies also came to the market to buy dollars for covering imports and the RBI was also seen buying dollars to curb the sharp appreciation of the rupee. "Else the rupee could have touched 40.00 today itself," said a dealer.

The annualised premiums for the six-month and one-year forward dollars, however, closed higher since the interest rate differential between the US and India widened after the Fed rate cut. Demand from oil companies to book dollars at lower levels also led to firm premiums. The six-month and one-year forwards closed at 2 per cent and 2.04 per cent against 1.73 per cent and 1.78 per cent, respectively, on Tuesday.

Money: RBI absorbs Rs 7000 crore
Liquidity remained easy even after the advance tax outflows. The RBI absorbed around Rs 7,000 crore from the market. Call rates at which banks lend and borrow from each other for daily fund requirement closed at 6.20 per cent. In the collateralised lending and borrowing market, banks could borrow funds against the collateral of government securities at below 6 per cent.

G-sec: Lacklustre show
Surprisingly, the government securities market remained lacklustre even after the 50 basis points cut announced by the Federal Reserve. According to dealers, the Indian government bonds market tracked the US bonds market which was subdued since concern on inflation in the US were prominently noted in the minutes of the Federal Open Market Committee meeting.

Yields for the ten-year US treasury bonds rose to 4.52 per cent from 4.47 per cent on Tuesday, while the 30-year paper witnessed rates moving up from 4.76 per cent to 4.81 per cent.

At close, the market witnessed stray buying interest that resulted in prices going up by 5-20 paise across maturities for government papers. The yield on the ten-year benchmark government security came down to 7.82 per cent as against 7.85 per cent on Tuesday.

However, bullishness in interest rate was seen at the shorter end of the maturity since the cut-off yield on the 91-day and 182"�day t- bills came down to 6.98 per cent and 7.25 per cent as against 7.10 per cent and 7.40 per cent, respectively, in earlier auctions.

OIS: Rates track G-sec cues
Trading interest in the overnight interest rate swap (OIS) market was subdued tracking the government securities market. However, the one-year segment witnessed deals and thus the interest rate on the benchmark maturity came down from 6.95 per cent to 6.73 per cent. The 5"�year segment remained illiquid with interest rates ruling around 7.08 per cent as against 7.09 per cent.

Interest rates across maturities in the corporate bond market came down following the Fed rate cut and bullish sentiments. Upper tier II bonds of State Bank of India was trading at 9.94/95 per cent as against the primary issue rate of 10.05 per cent. The five-year bond rates also came down to 9.60/65 per cent as against 9.75 per cent earlier.

In the short term, State Bank of Mysore raised nine-month money at 8.35 per cent which was available on Tuesday at 8.55 per cent. Similarly, Exim Bank mobilised funds for three-month at 7.70 per cent as against 7.86 per cent.

Global markets: Euro, pound rally
Major currencies such as the euro and the pound rallied against the dollar after the Federal Reserve opted for a 50 basis-point cut in its basic interest rate - the Fed rate. The euro and the pound ruled at $1.3967 ($ 1.3877) and $1.9991 ($1.9939).

However, the yen could not rally much and it ruled at $115.86 ($115.83).