Call rates may hold steady, rupee seen firm
Call money rates ended the week lower at 5-5.25%, down from the previous week’s close of 6-6.10%.
Call money rates ended the week lower at 5-5.25%, down from the previous week’s close of 6-6.10%. Inter-bank rates fell to as low as 2% since most of the banks had covered positions well in advance. Huge amounts infused by RBI into the system through LAF offered support to the market while call rates topped 8%.
On Friday, at the LAF window nine bids worth of Rs 10,300 crore were received at the reverse repos auction while at the repos auction, RBI accepted 20 bids worth Rs. 33,075 crore. Call rates are expected to hold steady. Refunds from the unallotted portion of the IPO will help liquidity.
Gilts Market
Bonds pared gains, which they had posted on hopes of a rate cut by RBI. However, hopes of a rate cut were alive and returned in the later part of the week. Ten-year yield ended at 7.48%, off early high of 7.54%, which it touched during the week. Yields rose to their highest level in more than one week. However, another rate cut by the US Fed generated positive sentiment once again. Bonds are expected to stay positive and improvement in cash conditions will help further.
Corporate Bonds
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Trading activity in corporate bond was sparse as players took to the sidelines. RBI’s decision to maintain status quo on key policy rates triggered some hardening across the curve. Thus, short-term spreads narrowed sharply compared to the longer end. Improvement in rupee liquidity would be important for corporate bond activity.Commercial Paper
Systemic liquidity was comfortable as reflected by average amount of reverse repo bids received at the LAF window amounting near to Rs 9,000 crore compared to Rs 5,743 crore week ago. Three-month reference P1+ CP rate hit 8-month high of 9.20% intra-week before easing sharply to 8.70% from 9.04% a week ago.
Forex
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The rupee stuck to a very narrow range through the week, ending at 39.36 against the dollar. A 50-bps rate cut by the Fed did not impress the rupee, with the expected decision offset by steady RBI monetary policy. FII selling of local equities increased to $3.23 billion in January. In the later part of the week, the rupee managed to edge up a few paise, possibly as normal month-end eased. The rupee is expected to remain firm and state-run bank bids will be watched.Credence Analytics India Pvt Ltd
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