Re closes at 44.68, call rates end at 6.10%

Nov 28 | Updated: Nov 29 2006, 08:43am hrs
Prices of bonds halted four straight sessions of gains, to end steady on Tuesday as investors preferred to book profits after the strong run. The yield on the 10-year benchmark bond ended at 7.38%, unchanged from the previous close. The bond hit an intraday low of 7.36%. Traders awaited news of the governments next auction. According to the borrowing calender, the government is scheduled to raise Rs 9,000 crore between December 1 and 8. The auction is not a concern. It would be a worry if the borrowing is off the mark from the schedule, said a foreign bank trader. Bonds prices have steadily risen over the past two weeks on expectations the central bank would not raise interest rates till its next monetary policy review in January. Dealers said the central banks intervention in the foreign exchange market this month had infused cash into the banking system. Banks are investing surplus funds in bonds, traders said. Traders said there was little impact of the overnight rise in oil prices which traded above $60 a barrel on Tuesday.

Call rates in the inter-bank money market ended at 6.10-6.20%. The Reserve Bank of India absorbed Rs 4,970 crore through its first reverse repo auction on Tuesday and another Rs 4365 crore through its second reverse repo auction.

Meanwhile, the domestic currency lost ground against the dollar on Tuesday after data showing a rising trade deficit and falling share prices renewed questions about the countrys ability to finance its trade gap. Indias trade deficit more than doubled to $6.21 billion in October from a year earlier as demand for imports in the worlds second-fastest-growing major economy outstripped exports.

The rupee closed at 44.68/44.69, weaker than a previous close of 44.655/665. As per JP Morgan, the outsized trade deficit in October will refocus investor attention on Indias current account deficit and its funding, despite the resilience of capital inflows, especially portfolio investment, JP Morgan expects the current account gap to widen to 1.8 percent of GDP in 2006/07 from 1.3% in 2005/06. In the forward market, premias ended higher, with the six month annualised premia closing at 2.06% on Tuesday as compared to 1.95% on Monday.