Weekly Money Market Report : Aug 7th - Aug 11th
The call rates remained firm for most part of the week in the range of 10-14% and towards the end of the week, eased back to 8%. During the entire week, the RBI kept the cut off rate for its repo auction high, which didn't allow the call rates to ease down. Even towards the end, call rates eased because there was not much of a demand for funds as most of the banks had covered their reserve positions ahead of the reporting Friday. The detailed report follows:
Friday, 11th August
Call rates ended the day sharply lower at 7.75–8% amid good supplies of funds coupled with little demand from banks as most of the banks had covered their reserve positions ahead of the reporting Friday. Call rates opened at 13–14% unchanged from their previous close. The RBI fixed a cut off rate of 14% for its 3–day repo auction accepting bids worth Rs. 3210 crores and a yield of 14% for its 5–day repo auction accepting bids worth Rs. 1280 crores. At the reverse repo auction, it didn’t accept a single bid. The call rates hovered at 11% for most part of the day but eased down to 8% towards the end of the day, as there was very little demand from the banks. In the G–secs market, the bonds rallied tracking the firmer rupee.
Thursday, 10th August
Call rates ended the day stable at 13-13.75% amid steady demand for funds from banks to cover their reserve positions on the eve of the end of reporting cycle. Call rates opened in a broad range of 13.25 – 14.5% and finally closed at this level. Demand for funds from some banks to cover their outflows towards the repo auctions prevented the call rates from easing down. The RBI kept the cut off rate for its one-day repo auction unchanged at 14% and 15% for its 4 – day repo auction. In the G –secs market, bond prices eased after the rupee weakened in the forex market. Yields have sharply risen since the RBI hiked the key interest rates on July 21st.
Wednesday, 9th August
Call rates ended the day steady at 13 – 14% after the RBI set a low cut off rate for its repo auction. Call rates opened marginally higher on expectations of a higher yield on repo auctions. However, the RBI fixed lower yields. For one - day repos, it fixed a cut off rate of 14% as against 14.5% yesterday accepting bids worth Rs. 1370 crores and 15.5% for its 5 – day repos accepting bids worth Rs. 720 crores. The call rates that were quoting just over 15% before the announcement of these yields immediately eased following this and finally closed at this level. The rupee’s firmness in the forex market also gave some comfort to the RBI to let loose some liquidity.
Tuesday, 8th August
Call rates ended the day sharply higher as compared to their previous close amid outflows of Rs. 6000 crores towards the RBI’s repo auction. Call rates opened firm at 11.5 – 13% before closing at 13 – 13.5%. Expectations of higher yields on repos weighed on the market sentiment and pushed up the demand for funds. For 1 – day repos, the RBI fixed the cut off at 14% accepting bids for Rs. Rs. 3650 crores and 15% for 3 – day repos accepting bids worth Rs. 2350. Due to this, there were concerns about the tightening of liquidity in the system. Due to this, the prices of G – secs fell by as much as 5 – 10 paise as the dealers went on a selling spree due to liquidity concerns. The RBI also auctioned 10-year state loan, which was heavily oversubscribed in these circumstances. It set a yield of 11.70% for this loan.
Monday, 7th August
Call rates ended the day higher at 9.5 – 10% due to demand for funds and hiking of the cut off rate for its repo auction by the RBI. Call rates opened higher at 10 – 12% amid concerns of tightened liquidity in the system but came down in the afternoon session before closing at this level. There was huge demand for funds, prior to the repo auction due to the expectations of higher outflows towards the repo auction. The RBI fixed a cut off rate of 14% for its 4 – day repo auction and 12.5% for its 1 – day repo auction. The RBI accepted 35 bids for Rs. 4130 crores for 4 – day repos. There was also an increase in the refinance outstanding to Rs. 13,101 crores from Rs. 12,585 crores. Net inflows from the RBI’s Open market operations (OMO) during this reporting fortnight were at Rs. 1,085 crores. So a good amount of liquidity in being sucked out of the system by the RBI to check the volatility in the forex market.
Rajneesh Mittal