Rupee affected by dollar bullishness

Mumbai, Feb 1 | Updated: Feb 2 2006, 05:30am hrs
The quarter basis points (bps) rate hike in the US Fed rates to 4.5% on Tuesday, failed to dampen the sentiments of debt investors. Prices of government securities rallied in the early hours of the trading session on comfortable liquidity and expectation of cancellation of government securities auction in February. However, bond market gave up its early gains, following statements made by a finance ministry official that government would go ahead with its slated auction for the month of February. The government is slated to raise Rs 6,000 crore by way of 10-14 year bonds and Rs 3,000 crore by auction of 20-year and above bonds. Market had already factored in the hike in US Fed rates and hence the rate hike failed to deter the sentiments of debt players. However, the confirmation of the auction of government securities weighed down on their sentiments, which eventually resulted into bond prices closing a tad lower than its previous close, said a primary dealer.

The yield on the benchmark 10-year bond ended at 7.36%, barely changed from its previous close. Among the actively traded securities, 8.07% government paper closed the trading session at Rs 105.24, as against its previous close at Rs 105.17/20.

The call rates eased to 7-7.20% on Wednesday. The Reserve Bank of India (RBI) pumped in a whopping Rs 9,200 crore through the repo auction in the morning at 6.50% and another Rs 4,500 crore in the afternoon, under the liquidity adjustment facility (LAF). It also absorbed a modest Rs 25 crore through the reverse repo auction in the morning and another Rs 2,115 crore in the afternoon. In the foreign exchange market, the domestic currency weakened on back of the dollars bullishness prevailing in the market following the Fed statements hinting at further firming up of interest rates. The rupee ended at 44.21/22 per dollar, 0.2% lower than its previous close of 44.12/13.

Aggressive buying of dollars by state-run banks on behalf of RBI to meet some requirements from the defence sector pushed the rupee further. Dollar gained strength against all the major currencies on back of expectations of further rate hikes, said a Forex dealer at a state-run bank. At the forward segment, the six month benchmark premia ending in July, closed the day at 2.37%, while the twelve month benchmark ending in January closed at 1.80% on Wednesday.