Call money stayed close to the 7 per cent bank rate during last week. This week is likely to see outflow of Rs 6,000 crore on Thursday on account of a government security auction. However, call rates are unlikely to tighten above 7 per cent on two counts: banks are likely to have overcovered their reserve requirements in the first week, and about Rs 6,000 crore unutilised refinance is available at the bank rate.Rupee stays firm:
The rupee stayed near 43.65 against the dollar through the week, closing at 43.66. The FII inflows have been strong during April, recording $593 million till the April 27, the second highest inflow for a month.
The monetary policy reiterated RBI's stance that "management of the exchange rate continues to be the maintenance of orderly conditions in the foreign exchange market, meeting temporary supply-demand gaps which may arise due to uncertainties or other reasons, and curbing destabilising and self-fulfilling speculative activities. To this end, as in the past, the Reserve Bank will continue to monitor closely the developments in the financial markets at home and abroad, and take such measures as it considers necessary from time to time." Any major volatility in the rupee appears unlikely in the near future, but the rupee could start trading in a slightly lower band of 43.60 to 43.70 agaisnt the dollar.
T-bill auction cut-offs decline:
Stable call money rates led to better bidding in the short treasury bills. The 14-day treasury bill cut off at 7.06 per cent, 26 basis points below the previous week. The 91-day treasury bill yield also declined: the cut off was 7.14 per cent compared to 8.19 per cent the previous week. The cut off was steady in the 182-day treasury bill at 8.55 per cent.
Ten-year auction announced
The gilt curve has steepened a bit during last week. Call money has remained stable at 7 per cent and is expected to stay near these levels. At the same time, the potential supply of long tenor paper has led to the view that interest rates could move up. This has led to a shift in market interest from long tenor securities to the short end. Prices at the short end remained stable, even as those at the long end dropped about 20 paise.
Another government security auction has been announced. The 12.25 per cent 2010 security maturing on July 2, 2010 will be auctioned on May 3 for a notified amount of Rs 6,000 crore. Currently, the two liquid securities bracketing this: 12.29 per cent 2010 and 12.32 per cent 2011 are trading at 10.36 per cent and 10.48 per cent yields, and this security is likely to cut off somewhere between these . (For the week ending April30)
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