On Monday (November 3) the day of the RBI policy the ten-year yield moved up eight basis points (bps) to 5.15 per cent. The market was not really prepared for a status quo on the cash reserve ratio (CRR), Bank Rate and repos rate front. Most were hoping that if not a CRR cut, at least a Bank Rate cut maybe on, a dealer with a primary dealership said.
In the run up to the policy, liquidity had turned tight account because of the RBIs) open market operations. The RBI sold nearly Rs 8,000 crore worth of bonds. Gilts prices fell after call rates turned tight. And the benchmark 10-year yield on the 7.27 per cent 2013 paper had closed at 5.12 per cent. All eyes were therefore on the key rates.
That never happened in the policy, and gilt prices fell on Monday, and the story was more or less the same throughout the week gone by.
On Friday, for instance, security prices fell despite easy call rates by 15-20 paise in the medium to longer term, in spite of mild buying on dips towards close. The benchmark 7.27 per cent 2013 ended at Rs 116.80/85, down by around 14 paise with the yield rising to 5.08 per cent from its overnight 5.07 per cent. The 9.81 per cent 2013 lost 13 paise at Rs 135.32/34 with the yield moving up to 5.10 per cent (5.08 per cent). The actively traded 8.07 per cent 2017 was quoted around Rs 124.65/70 in late trades and the 7.46 per cent 2017 at Rs 119.60/65 (Rs 120.00). The 7.40 per cent 2013 paper closed at Rs 116.00/05 (Rs 116.25/30).
Dealers said that fall the in gilt prices will correct after time as there is no problem whatsoever on the liquidity front. Call rates ended the week at around 4.40-4.50 per cent. Call rates have been range-bound between 4.40 per cent and 4.50 per cent for most of the period after the RBI policy.
Furthermore, the RBI continued to get a good response at its repos auctions. On Friday, it mopped up Rs 15,000 crore at the three-day repos auction at the cut-off price of 4.50 per cent under the liquidity adjustment facility.
Another indicator of liquidity is the fact that the auction of the Rs 5,000 crore floating rate bond (FRB-2012) did not have any impact at all. The central bank received 85 bids for Rs 10,930 crore and it accepted 29 bids for Rs 4,991 crore at the auction.
In the forex market, premiums did inch up as banks did sell-buy swaps. The sixth-month annualised forward cover rose to end the week 0.81 per cent. The rupee closed at a one-month against the dollar at 45.26/27 on strong trade and capital dollar inflows, even as state-run banks absorbed parts of the dollar supplies.