The bond yields ended flat on Monday after opening higher and the call rates leaped to more than one-month highs as the Reserve Bank of India?s move to drain surplus cash took effect over the weekend. The yield on benchmark 10-year bond ended flat at 7.85%. It opened at 7.88%. The overnight call rates were at 6.00-6.10%–levels last tested in late June and higher than Friday’s close of 2.0-2.5%.
The cash available with the bank system dropped by about Rs 16000 crore at the weekend after RBI raised the cash reserve ratio to 7% from 6.5%. It also scrapped the Rs 3,000 crore limit on funds it accepts via reverse rapo auction in its daily market operations.
“Though overseas cues are slightly benign, liquidity trends will continue to determine the trading patterns in the near term,” a local trader said. Traders forecast that though market was likely to remain dull, the big buying in the US bond market on Monday may have its bearing on the Indian bond market when it opens on Tuesday.
The rupee lost ground on Monday on selling from overseas investors with a waning appetite for risk, though it was lifted off its lows by exporters who repatriated profits. The rupee ended at 40.41/42 per dollar, slipping from Friday’s 40.34/35, but recovering from an early low of 40.52. It hit a nine-year peak of 40.20 hit last month.
?Offshore investors tried to drive the rupee lower, but there are so many exporters looking to sell (dollars) when the rupee weakens a bit,” said a senior dealer with a foreign bank. The Indian currency took early cues from fellow high-yielding Asian units such as the Indonesian rupiah and the Philippine peso, which fell on Monday as more signs of a weakness in global credit markets prompted investors to cut riskier assets. Most analysts believe the volatility that has overshadowed emerging Asian currencies in recent weeks will persist amid worries about the fallout from the US subprime mortgage market. The credit worries and downbeat US economic data also weighed on India?s benchmark share index, which fell 1.55% to its lowest close in a month on Monday. Some dealers fear that a reversal in investor sentiment will put significant pressure on the rupee.A dealer with a private bank said that nationalized banks were almost sidelined from the market operations on Monday.