Money And Forex Markets

• Reflecting the shortage of liquid funds in the system, banks on Monday borrowed over Rs 1,16,000 crore from Reserve Bank of India’s (RBI’s) Liquidity Adjustment Facility (LAF). They covered themselves to meet prudential norms for liquidity.

• However, the resource strain did not push the interbank call rates to cross double digits. Just 10 days back, the call rates had zoomed to a two-year high of 12 per cent when banks drew over Rs 1,17,000 crore from RBI.

• Dealers said this was the first week of the new reporting fortnight and banks kept themselves in excess of requirement, resulting in higher drawl at the LAF window.

• Despite the high borrowing, the call rates moved between 3.25 per cent to 7.10 per cent, according to Clearing Corporation of India data.

• Moses Harding, head global markets group with IndusInd Bank, said it (liquidity pressure) was not a surprise for the market. RBI has discontinued the special liquidity arrangement, so the regular LAF window saw higher demand.

• RBI was trying to bridge the gap in resource position through the buyback of government bonds and special liquidity window, he added.

• The large movement of funds for the public offer of Coal India Ltd had created a strain in the system.

• On October 29, RBI said the frictional liquidity pressure may persist. It opened a special window to provide liquidity comfort. Banks could avail additional liquidity support up to one per cent of their net demand and time liabilities.

• It waived penal interest for any shortfall in maintenance of statutory liquidity ratio, arising due to this facility.

Bonds drop for a second day
The 12-year government bonds fell for a second day as overnight borrowing rates in the local money market climbed, thus reducing demand for debt securities.

The yield on the most-traded bonds due in 2022 rose to a one-week high, after the cost of borrowing funds overnight in the interbank market, reached 7.5 per cent, the highest this month. That deterred banks—the biggest buyers of government debt—to buy securities with borrowed funds.

The yield on the 8.13 per cent note due September 2022 rose to 8.03 per cent at close in Mumbai, from 8.02 per cent on November 4. The price fell 0.03, or 3 paise per Rs 100 face amount, to Rs 100.78.

Bonds rose earlier on speculation RBI will purchase existing securities to ease a cash shortage in the financial system. The cost of one-year interest-rate swaps, or derivative contracts used to guard against fluctuations in borrowing costs, was little changed. The rate, a fixed payment made to receive a floating rate, was 6.68 per cent.