Weekly Money Market Report : Aug 14th - Aug 18th

The call rates remained high during the week as against the previous week mainly because of the volatility in the forex market and sucking out of liquidity from the market by the RBI. The RBI accepted very few bids at its reverse repo auction but continue to mop up money at its repo auction. The gilts market saw a mixed trend. As and when the rupee was stronger against the dollar, the gilts prices rallied and when the rupee weakened, they crashed. The detailed report follows:

Friday, Aug 18th

Call rates ended the day at 14.25–14.75% virtually unchanged from their previous close. Call rates opened unchanged at 14.5–15%, started firming up due to liquidity concerns among the participants and touched an intra- day high of 16% before closing at 14.75%. At its repo auction, the RBI fixed a cut off rate of 15% and sucked out Rs. 3030 crores and it rejected all the bids it received for its six-day repo auction. The operators were expecting the RBI to hike the cut off rates and they built positions in the mornings accordingly. That’s why the rates firmed up. But after the results of the repo auction were announced, the rates came down. The gilts prices staged a rally after the rupee strengthened in the forex market.

Thursday, Aug 17th

Call rates ended the day higher at 14.5–15% against their previous close amid demand for funds and higher outflows of funds towards the repo auction of the RBI. Call rates opened the day higher at 14.24–14.75% and started moving upwards despite the repo auction cut off at 14.5%. And higher outflows towards repo auction caused the rates to firm up further. For its 1–day repo auction it accepted bids worth Rs.1825 crores at a cut-off rate of 14.5% and for its 5-day repo, it accepted bids worth Rs. 2120 at a cut off rate of 15%. There were no bids for the reverse repo auction. The gilts fell by as much as 30-40 paise due to weakness of the rupee in the forex market.

Wednesday, Aug 16th

Call rates ended the day at 13.5% unchanged from their previous close amid nominal demand for funds, which was matched by the adequate supplies. Call rates opened at 14–14.5%, marginally higher than their Monday’s close. At its 1-day repo auction, the RBI fixed a cut-off rate of 14.5% accepting bids worth Rs. 1345 crores and for its 6-day repo auction, it fixed a cut off rate of 15% accepting bids worth Rs. 2775 crores. It rejected a single bid it received at its reverse repo auction. The call rates ended steady mainly because the RBI didn’t hike the cut off rates for its repo auctions. Also the rupee’s firmness in the forex market helped them to cool down. The total RBI refinance to the banking sector stood at Rs. 11242 crores on Aug 14^th as against Rs. 11175 cores on Aug 12^th. In the gilts market, the prices rose by 10–15 paise after the rupee strengthened against the Greenback.

Tuesday, Aug 15th

Holiday

Monday, Aug 14th

Call rates closed the day at 13.5% as against their weekend close of 8%. Call rates opened at 14–14.25% level but started moving up due to shortage of funds and touched an intra-day high of 14.5% before closing at 13.5%. Rates fell after the RBI announced the reverse repo auction. Actually, the banks were holding funds in the morning to invest in the repo auction of the RBI. Once the auction was over, the funds from the operators, whose bids were not accepted, came to the market and the rates cooled down. The RBI sucked out Rs. 3340 crores from the market through its 2-day and 4-day repo auction at a cut off rate of 14.5% and 15% respectively. The sentiment in the G–secs market was bearish in the morning but once the RBI directed the exporters to convert 50% of the balances in their EEFC into rupees, the prices moved up sharply, by as much as 35–40 paise.

Rajneesh Mittal