Inter-bank Mart Calm Ahead Of $5.5 Billion RIB Farewell

Mumbai, September 29: | Updated: Sep 30 2003, 05:30am hrs
Within the next 48 hours, the $5.5 billion Resurgent India Bonds (RIB) will be consigned to the history books with its redemption. On the eve of the redemption with Monday being a virtual holiday on account of the half-yearly closure of bank books the inter-bank markets ruled calm despite a few hiccups over the last fortnight. On Monday, key indicators the rupee, forward premiums and call rates quoted largely steady.

The rupee finished the day at 83/84. The six-month forward cover quoted higher at 0.85 per cent against Fridays close 0.65 per cent on typical month end demand. The only worry: while the spot-dollar was at 45.85, cash-dollar was dealt at 45.91 indicating that there is a shortage of dollar funds. Generally, cash-spot is at a premium, but on Monday it quoted at a discount of up of six paise. Call rates though were benign closing at 4-4.25 per cent. Bond prices inched up.

Liquidity is very good and fears that rupee-liquidity will be affected by the redemption of the $5.5 billion RIB are zilch now, a dealer with a primary dealership said. At the RBIs one-day repos auction held on Monday, all 29 bids for Rs 26,270 crore were accepted. The nearly $700 million addition to the forex reserves taking into $88 billion has infused rupees into the system, the dealer added.

But the bigger picture is that fears over a shortage of dollars and the impact of the redemption of rupee-liquidity in the inter-bank markets have been largely extinguished. Credit for this in large measure must go the Reserve Bank of India (RBI) which came up with a timely update on the redemption and its impact last fortnight, which managed to allay all residual doubts and fears.

In its update on September 18 on the impact of the RIB redemption, the central bank said that it will be infusing rupee liquidity into the market on account of purchase of forward foreign currency assets and this will, to a great extent, neutralise the rupee outgo from SBI to RBI for purchasing the foreign exchange required for redemption. The balance lying in the Maintenance-of-Value account built up during the last five years would be used to meet the exchange loss.