Call rates ease at 5% on liquidity, Re slips to 39.36/37

MUMBAI: Excess liquidity prompted rates in the money market to dip on Friday, especially in the market for secured lending and borrowing operations — the CBLO market — where rates closed at 0.30%. Call rates ended at 5%, while rates in the repo market ended at 3.50% levels. Inter-bank call rates opened at 6.05% and saw transactions worth Rs 9,708 crore being struck. Call rates dipped to as low as 3.50% during the day.

Rates in the CBLO market dipped to 0.25% in the day, after opening at 5.60%. Transactions worth Rs 28,395 crore were carried out on the CBLO market. Meanwhile, banks placed bids worth Rs 36,545 crore, at the central bank’s liquidity adjustment window, which were completely mopped up.

In a bid to soak up these excess cash flows, RBI has also announced bond auctions worth Rs 26,000 crore for the coming week. This includes bonds worth Rs 10,000 crore under the market stabilisation route and an equal amount worth of dated securities. RBI would also be selling treasury bills worth Rs 6,000 crore next week.

Thus, the central bank is making frantic attempts to prevent the rupee from rising on one hand and also, control the cash flows in the banking system. Over the past few days, the central bank has been entering into sell-buy swaps with nationalised banks, i.e. selling rupees in the spot market and buying them in the forward market. Sources in the money market estimate that the central bank could have bought $5 billion through these swaps in the past few days.

The rupee weakened by six paise on Friday, after comments from finance minister P Chidambaram prompted RBI to intervene. The local currency ended at 39.36/37 levels against the dollar, slipping from its close of 39.30 on Thursday. Forward premia rates went up from their previous levels, with the one-month contract closing at 1.36% (1.35%).

The rupee had opened strongest 39.28 against the dollar, but the FM’s comments that the surge in domestic stocks to record highs worried him sometimes, and that the huge capital inflows that had helped power the gains were much more than anticipated, served as a trigger for nationalised banks to start buying dollars.

Rates on the six-month contract closed at 1.84% (1.75%) and the annual contract closed at 1.39% (1.36%). Meanwhile, unexpectedly strong industrial production data lifted the bond markets, though volumes remained low. The yield on the benchmark paper, the 7.99% bond maturing in 2017, ended at 7.90%, a tad higher than the previous close of 7.89%.