Mumbai, Feb 20: The money market witnessed a steep fall in volumes at the central bank's fixed rate nine per cent repurchase agreements of government securities (repos) this week.The prime reason for the low participation is due to the bank credit offtake and year-end redemptions of mutual funds' schemes and financial institutions (FIs) like the Unit Trust of India.
Volumes between Monday and Friday were sharply down by Rs 9,615 crore at Rs 1,973 crore, registering an 83 per cent drop from the previous week's Rs 11,588 (Monday to Friday). The total repo deals last week (Monday to Saturday) were Rs 11,651 crore.In addition to this, banks are also witnessing the tightness of rupee funds due to rising demand on the foreign exchange front.
On Friday, there was hectic buying of forward-dollar contracts by importers as they fear that the dollar might become dearer if the US declares war on Iraq. ``The war, if declared by the weekend, could push up oil prices and the rupee could fall further against thedollar. This panic has led to large dollar-covering in the forwards today,'' said a dealer at a brokerage.
The rupee weakened further against the dollar and the dip was more prominent in the forward contracts as premiums touched new highs. Six-month dollar deliveries touched a high of 15.75 per cent, roughly a percentage point higher than the previous day's close.
June deliveries on Friday closed at Rs 2.22-2.29 over the spot dollar rate as compared with the previous close of Rs 2.06-2.09, while July dollars ended at Rs 3.14-3.19 versus the previous level of Rs 2.89-2.93.
On the liquidity front, UTI, incidentally, continues to witness buyback of its Unit Scheme-1964 mainly by large investors like banks, FIs, MFs and insurance companies that are withdrawing their investments from UTI to meet their own requirements, bankers said.
The lower participation in repos is also because this is the first week of the reporting fortnight for banks and banks are more concerned about meeting statutory reserveobligations with the RBI than investing in fixed rate repos, a senior banker at State Bank of India said.
But the additional demand for credit is cited as the main reason by many for the dip in repo volumes this week.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
