Weekly Money Market Report : Aug 28th - Aug 31st

The week saw call rates almost declining trend touching as low as 11% on Thursday, end of the week. For four day repos, RBI slashed its repo cut-off yields by 75 points and for six day repos, it was slashed by 50 points. There was a heavy demand from the banks but this was met by the improved inflows through treasury bill redemptions and coupon payments on government securities. The rates were around the central bank's repo almost the whole week. With the announced LAF results, the rates and the bond prices also fell. The detailed report follows:

Thursday, 31st August

Call rates ended lower at 11-12% after RBI lowered its repo yields by 50-75 basis points. The rates opened at 13.75-14.25 %, as against the previous close of 13.25-13.75%. The call rates hovered around these levels but eased after the central bank reduced the cut off rates at its repo auctions. For four day repos, RBI slashed the cut off by 75 basis points to 13.5% and accepted 9 bids for Rs.1240 crore out of 19 bids for Rs.1695 crore. For six day repos, RBI slashed the cut off by 50 basis points to 14% and accepted 10 bids for Rs.1210 crore out of 15 bids for Rs.2140 crore. The RBI did not receive any bids at its reverse repo auction. The call rates touched an intra day low of 10%, after the announcement of liquidity adjustment facility (LAF) results. However, demand for funds towards the end of the session led the call rates to firm slightly. Bond prices rallied by 50-60 paise, amid firmness of rupee and cut in repo yields by the RBI. The 12.5% 2004 bond ended higher at Rs.104.9 as against the morning level of Rs.104.4.

Wednesday, 30th August

Call rates ended lower at 13.25-13.75%, after the central bank fixed a lower cut off rate at its repo auction. The rates opened at 14.25-14.75 % and touched an intra day high of 15%. For one day repos, the RBI fixed a cut off of 14.25%, as compared to the previous close of 14.5%. The central bank accepted 2 bids for Rs.350 crore out of 4 bids for Rs.430 crore. For the six day repos, RBI fixed a cut off of 14.5% and accepted 29 bids for Rs.1,735 crore. At the reverse repo auction, the central bank lent Rs.25 crore at a cut off rate of 15%. It accepted a single bid received for Rs.125 crore. The rates fell and bond prices were range bound with early losses liquidated once the liquidity adjustment facility (LAF) results were announced.The 12.5% 2004 security ended at Rs.104.6 as against previous close 0f Rs.104.68.

Tuesday, 29th August

Call rates ended steady owing to adequate loose liquidity in the system to meet the needs of borrowing banks. Call rates closed around 14.25-14.5 %, little above the previous level of 14-14.25% after ruling a range of 14-14.75%. The rates were around the central bank's repo of 14.5%. Activity was moderate and the market ended squirt. The secondary market for securities met with renewed selling following an announcement of auction of Rs.3000 crore of 2008 government bonds. Prices of government bonds fell by 15-25 paise across the spectrum.

Monday, 28th August

Call rates closed with a marginal change from the previous levels of 14-14.5 percent after opening at the same level but traded actively around 14.25-14.5%. Lenders quoted around the central bank's daily repos agreement rate of 14.5% despite ample liquidity in the system and borrowers resistance. Improved inflows through treasury bill redemptions and coupon payments on government securities ensured ample liquidity in the system to cope with the heavy demand of banks. RBI had absorbed Rs.8,000 crore from the system through the one day and three day repos at a cut off price of 14.5 % and 15% respectively. The secondary market for securities was fairly active in two way movements with the government bond prices initially rising on buying enquiries but late selling pared most of the early gains.

K.Venu Babu