Call money
Call rates ended around the refinance rate of 8 % on comfortable liquidity conditions on Wednesday. The overnight interest rates opened steady at 8.10-8.20 %, as against the previous close of 8-8.10 %. There was an infusion of Rs 6,135 crore into the system from the daily repo sale of the RBI. There was also an inflow of Rs 6,525 crore from repo reversals. The RBI accepted the three bids received at the repo sale. There were no outflows through the reverse repo window of the RBI. "There were expectations the rates may firm up, mirroring the trend in the forex market. However, the inflows of more than Rs 12,000 crore provided cushion to the market. The rates, which moved up slightly to 8.25 % in the morning, eased on improved liquidity and relatively lower demand for funds. The rates closed at 7.90-8 %. Ample liquidity continued to prevail in the system, despite the recent CRR cut and reduction in refinance levels announced.
FORECAST: Call rates around 8% on Thursday.Spot dollar
The rupee touched a new all time low of 45.36/37. The rupee's fall continued unabated, with the currency weakening by over 20 paise in intra-day trading. The rupee weakened to its lowest levels, before some dollar selling by some state run banks lifted it to close the day slightly higher at 45.32/33. The rupee opened weaker at 45.16/17 as against the previous close of 45.15/16. "The currency fell on heavy dollar buying by state run and foreign banks." Banks were buying dollars for their corporates for ECB interest payments and oil payments. "Besides, demand from FIIs added fuel to fire," dealers said. The State Bank of India (SBI) reportedly did not resort to any significant dollar selling to support the rupee on behalf of the RBI. Forex dealers expect the RBI to intervene in case the rupee falls further beyond the 45.50 level. Meanwhile, the RBI fixed its reference rate for the US dollar at 45.34 as against 45.13 in the previous session.
FORECAST: Rupee weak if the dollar demand sustains.
Forward premiums
Forward premiums, tracking a weak spot rupee, ended higher on Wednesday. The six month premium ended at an annualised 4.27% (4.17%), with the one year premium closing at 4.29 per cent compared to 4.19 per cent on Tuesday. August dollars ended at 15/17 paise, Setpember at 31/33 paise, with February closing at 109/111 paise and March at 124/126 paise. At the inter-bank call money market, overnight rates ruled easy on comfortable liquidity and closed lower at 7.90-8 per cent, as against 8.10-8.20 per cent in the previous session. "The premia tracked the weak rupee, rather than the call rates," a dealer said, adding: "There was heavy paying in the one, three and six month maturities." The rupee has depreciated by 3.5% since the beginning of the year. This is relatively modest compared to what the dollar's strength has done to other currencies.
FORECAST: Highier premiums.
Gilts
Short-to medium-term dated bond prices fell by 10-20 paise on Wednesday. The 12.5% 2004 ended at Rs 104.85 as against the previous close of Rs 104.95. "The weakness in the spot rupee to below 45.25 levels, saw quite a many off-load bonds in anticipation of stiffer Reserve Bank of India (RBI) measures to prop up the rupee", a dealer said. Call money rates had opened at 8.10-8.20% levels, but the cash reserve ratio (CRR)hike by 0.25% - the first tranche of a two-part CRR hike by 0.50% - effective from Saturday, and a reduction in bank's refinance facilities did not have much impact on call rates or on the bond prices. "There is liquidity in the market, but sentiment is poor", a dealer said adding "It is the weakness in the rupee that affected trades in the securities market today.
FORECAST: Bond prices holding lower.
-- (Compiled by Anurag Joshi)
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