MUMBAI, Mar 19: Forward premiums crashed and prices of government papers soared on Thursday on the back of 50-basis-point cut in the bank rate.The six-month forwards touched an intra-day low of 7.17 per cent (annualised) before rising to close at 8.20 per cent.SBI Capital Markets, in its debt market review for the period February 28 to March 13, hinted that the bank rate cut would send the right direction to the market.
"A token bank rate cut will send out the much-needed direction for the market," the commentary, released today, said. The Reserve Bank of India (RBI), which put a new sale list effective Thursday, witnessed huge dealings in the high coupon securities. About Rs 679 crore worth of 12.69 per cent gilt maturing in 2002 was bought from the RBI, while another Rs 450 crore of the 13.05 per cent gilt maturing in 2007 was bought from the sale window. The window closed at 1 pm today.
Later, in the secondary market, the prices of both the securities rose as players were expecting the apex bank torevise the prices of the securities on Friday. The RBI revised the price of the 12.69 per cent 2002 to 104.47 from 103.95, while the price of the 13.05 per cent gilt maturing in 2007 was revised to 105.51 from 104.61.
The central bank might start rationing the high coupon securities from tomorrow if the demand continues to remain high, dealers said. In the secondary market, money market dealers said that prices of securites fell by 25-30 paise across the board in the morning. "A lot of banks were buying, and selling was taking place at higher levels. But in the afternoon, banks started to book profits which saw the prices harden marginally towards the end of the day," a money market broker said.
The SBI Capital Market review has further stated that the liquidity is expected to remain easy, though a tightening is possible on account of the VDIS and tax outflows. "Maturing forex swaps entered into in January by the apex bank is also likely to affect rupee liquidity," the commentary said.
In the forwardsmarket, six-month annualised premiums touched a low of 7.17 per cent during the day on receiving pressure mainly due to the bank rate cut. "However, importers came in at this rate, which they thought to be a good rate, and paying pressure started to build up which saw the forward rupee weakening to 8.2 per cent at close," a dealer in a private sector bank said. On Tuesday, the six-month forwards had closed at 8.40 per cent.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
