Repo Rate Cut Props Up G-Secs Prices

Updated: Aug 31 2003, 05:30am hrs
The government securities prices flared up during the week ended August 30, 2003, following repo rate cut by 50 basis points coming into effect from August 25 (Monday). The 10-year 9.81 paper closed on Saturday at Rs 134.32, which is higher by Rs 2.62 against the previous weeks close of Rs 131.70.

The rise was the highest in the medium-term high liquid bonds. For example, the 9.85 per cent 2015 bond closed on Friday at Rs 139.16 against the previous Fridays close of Rs 135.77. The long-end bonds like 8.07 per cent 2017 and 6.35 per cent 2020 closed on Friday at Rs 123.27 and Rs 106.35 against the previous Fridays close of Rs 120.40 and Rs 103.60 respectively.

The repo rate cut has come as a surprise for the bankers who did not expect it to happen at a week-end. The only thing they could do was to buy some more G-Secs immediately after the market opened on Monday, a dealer said.

However, the Mondays trading was rendered volatile by the twin bomb blasts in Mumbai. The volatility induced by the blasts have taken the total volumes on the National Stock Exchange wholesale debt market to hit an all-time high of 13,912 crore.

The State Development Loan 2015 auctions on Monday were also oversubscribed. The issue that has led to tightening of liquidity conditions to some extent was apparent from one of the lowest repo bids for Rs 2,675 crore, of which, bids for only Rs 2,585 crore were accepted by the RBI.

While the G-Secs prices regained their lost ground on Tuesday, they fell steadily over the next three days of the week, particularly on Friday after an RBI officials comment that the yield curve was not as steep as it was expected by the RBI. The comment has induced a kind of nervousness in the market, said the dealer.

During the week, the total turnover on NSE WDM was at Rs 53,818.57 crore as against last weeks turnover of Rs 27,138.95 crore. The total number of trades during the week was at 7,730 as against the last weeks level of 3,530. The weighted yields on government securities with a maturity within 3 years, 3-7 years, 7-10 years and more than 10 years were quoted at 4.76, 5.04, 5.23 and 5.59 per cent respectively.

In the call market, the rates aligned to the new repo rate only by Tuesday. However, the call rates fell on Saturday to 4.00/25 per cent level particularly due to lack of demand, even as the banks were ready to lend.

The total repo auctions during the week touched Rs 89,270 crore, excluding the 14-day repo, which received bids for Rs 14,790 crore. However, the RBI has rejected one bid for Rs 900 crore on Monday.

In the forex market, the rupee weakened by 2.5 paise during the week by closing at Rs 45.8550/8650 against the previous close of Rs 45.8300/8350. This was also due to intervention by the state-owned banks.

The six- and 12-month forward premiums have closed steeply lower by the week-end at 1 per cent (1.92 per cent) and 1.11 per cent (1.90 per cent) respectively.

On the foreign exchange front, India added $148 million to the reserves during the week ended August 22, 2003 to take the total to $85.563 billion.