Rupee in range - bond prices fall
Mumbai: The rupee was range-bound between 43.70 and 43.72 against the dollar on Thursday ending at 43.7050/7150, marginally weaker than Wednesday's close at 43.7250.

Forwards market: The 12-month premium ended at 1.62/63 per cent (1.5 per cent) and the 6 month premium at 1.85 per cent (1.75 per cent).

G-Secs: The bond market saw a fall of nearly a rupee in the prices and rise of almost15 basis points in the yield following a hike in the reverse repo rate by 25 basis points. The actively traded 8.07 per cent-7 year-2017 paper opened at Rs105.07 (7.41 per cent YTM) ahead of the Annual Policy and fell to a low of Rs103.60 (7.60 per cent YTM), after the announcement of the rate hike. It later recovered to close the day at Rs104.10 (7.53 per cent YTM) against Rs105.07 (7.41 per cent YTM) on Wednesday.

The 7.38 per cent-10 year-2015 benchmark paper opened at Rs102 (7.10 per cent YTM) and closed at Rs101 (7.24 per cent YTM) against Rs101.95 (7.11 per cent YTM) on Wednesday. The 7.5 per cent-29 year-2034 paper ended at Rs97.25 (7.737 per cent YTM). On Wednesday, it closed at Rs 97.70 (7.697 per cent YTM).

Dealers said a hike in reverse repo at this juncture was unexpected since the Finance Minister had said earlier this month that interest rates would not harden.

Call rates: The inter bank rates rose to 5 per cent but settled at 4.75 per cent.

CBLO market: 179 trades aggregating Rs7219.05 crore, in the rate-range of 4.45 - 4.85 per cent were realised.
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RBI Annual Policy : Bank rate and CRR remain unchanged
Mumbai: The Reserve Bank of India, announcing its annual policy for the year 2004-05, has kept the bank rate unchanged at 6 per cent. The central bank has also maintained the Cash Reserve Ratio (CRR) steady at 5 per cent.

The RBI also said that it expects the economy to grow at 7 per cent in 2005-06.

RBI Governor Y V Reddy said that the inflation rate for the current fiscal is estimated to be in the range of 5-5.5 per cent.

Agricultural growth is likely to be at 3 per cent and industry and services sectors are expected to continue the current growth momentum while absorbing the impact of oil prices.

The monetary policy will aim to provide liquidity for credit growth and support investments along with emphasis on price stability, Reddy said. He said the focus will be on financial stability and stabilising inflationary expectations.

On the repo rate, he said the fixed reverse repo rate will be raised by 0.25 per cent to 5 per cent. The RBI, starting this financial year, will also conduct quarterly review in July and January, while the mid-term review will be carried on October 25.
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RBI hikes reverse repo rate
Mumbai: Financial markets went tight on Thursday with yields on government securities going up, as banks that have tied their lending rates to yields in the financial markets, were expected to mark up the price of retail and corporate funds. With the Reserve Bank of India marking up the reverse repo by 25 basis points to five per cent, government borrowings may turn costly.

The RBI left the bank rate and CRR unchanged at six per cent and five per cent, respectively.

The reverse repo rate is the return banks earn on excess funds parked with the central bank against Government securities. In moving up the rate in the Annual Policy Statement for 2005-06, the RBI Governor, Dr Yaga Venugopal Reddy, intends to squeeze out loose cash from the system to stall prices chasing consumer goods.

The central bank has pegged the inflation rate for the current fiscal between five per cent and 5.5 per cent, subject to the growing uncertainties on the oil front, both with regard to global prices and their domestic absorption. The economic growth for 2005-06 has been put at seven per cent and is expected to be moderated by quotes in the oil crude markets, which remain tight, RBI said in its annual policy statement.

"In India, the domestic factors dominate and they all point to stability. Global factors point to risks in terms of oil prices, interest rate movements and currency imbalances. With integration of economies these risks become relevant. However, our vulnerability to global risks will also be much lesser than the rest of the world," said Dr Reddy, speaking at a press conference here today.
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RBI Annual Policy: Corporate India gets huge boost
Mumbai: Among other measures in the Annual Policy statement, the RBI has proposed a screen-based negotiated quote-driven system for all dealings in call/notice and term money transactions. From April 30, 2005, all members on the Negotiated Dealing System (NDS) are required to report their term money deals on the NDS platform.

Giving a hefty gift to Indian corporates, the RBI has allowed them to invest up to 200 per cent of their net worth in overseas joint ventures and wholly owned subsidiaries, under the automatic route, against the earlier limit of 100 per cent.

In view of the importance of post-harvest operations, the limit on loans to farmers through the produce marketing scheme has been raised to Rs10 lakh under priority sector lending against Rs5 lakh earlier. Banks will be allowed to okay corporate proposals for commodity hedging in international exchanges. Cautioning banks on the slow rate of growth of deposits, Dr Reddy observed, deposit growth was not growing at the required pace. This was okay at a time when credit growth was sluggish but not in the current scenario when non-food credit during 2004-05 recorded its second highest growth in 55 years.

"The credit growth story is good but there should be diversified lending. We have strong credit growth, which now has to be reconciled with the significant size of the government-borrowing programme. The quality of credit growth should be enabled in a way that it doesn't destabilise anything," added the RBI chief.
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Chidambaram: Reverse repo hike not to impact lending rates
New Delhi: The Finance Minister, P. Chidambaram, has said that the Reserve Bank of India's move to hike the reverse repo rate would not immediately affect lending rates of banks. He also hinted that the Central Government might borrow less than the budgeted amount during the current fiscal.

A reverse repo rate is the interest rate earned by a bank for lending money to the RBI in exchange for Government securities. The RBI uses repo and reverse repo as instruments for liquidity adjustment in the system.

"The assumption that you are making that an increase in reverse repo by 25 basis points will have an immediate impact on bank lending rate is not correct.

"There is enough liquidity in the market and, therefore, lending rates will be benign. There are many cases where lending takes place at sub-PLR rates," Chidambaram said in his reactions to the RBI's Monetary and Credit Policy that was announced on Thursday.

On Government borrowings, he said the Government might not borrow as much as the level indicated in the budget. "Our calculations now show that we may have to borrow less than that. The Government is to borrow Rs10,000 crore in the first week of May. But we will restrict our borrowing to Rs8,000 crore," Chidambaram said.

Dr Rakesh Mohan, Secretary, DEA, held that Government's cost of borrowing was unlikely to see a significant increase on account of policy pronouncements.

"I don't think we are going to see any significant increase or change in the cost of borrowings. There is enough liquidity in the market for smooth implementation of borrowing programme," he said.
Dr Mohan said that there was a possibility that this year too "we might have a situation like last year where the borrowing was lower than the projected levels". Last year, the Government's borrowing was lower mainly on account of the debt-swap scheme for the States. This year, the Centre has hefty cash balances that may prompt it to go for lower borrowings.
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RBI Annual Policy : Non-bank players, except PDs, to be off money market from Aug 6
Mumbai: The Reserve Bank of India, in its Annual Monetary Policy has stated that it will implement the recommendations of the Twelfth Finance Commission in consultation with the Central Government. The State governments will now raise money directly from the market, as per the recommendations.

The Centre will no longer act as a financial intermediary for lending to States. In case some fiscally weak States are unable to raise funds from the market, the Centre will borrow for on-lending to such States.

RBI will also facilitate smooth transition of the process in consultation with the Centre and the state governments.

RBI also announced some measures for the money market. Beginning June 11, non-bank participants, except primary dealers, will be allowed to lend, on average in a reporting fortnight up to 10 per cent of their average daily lending in the call/notice money market. From August 6, non-bank participants, except PDs, will be completely phased out from the money market.

According to market sources RBI wants institutions such as mutual funds and non-banking financial companies to stay out of the inter-bank call money market, with only banks to remain as players.

From April 30, the benchmark limit for banks to fix limits on their exposure to call money market will be linked to the sum of their Tier I and Tier II capital. This essentially means that banks with more funds can afford to take additional risk, said a dealer.

A screen-based negotiated quote-driven system for all dealings in call and term money market transactions too have been proposed. This too is something that dealers have been asking for, since long, as it will bring more transparency to the deals. In the government securities trading, RBI has announced measures such as an electronic trading platform for market repo operations and allowing urban co-operative banks and listed companies having gilt accounts with scheduled commercial banks to participate in the repo facility.

The minimum maturity period of certificates of deposit (CDs) has been reduced from 15 days to seven days. Further recommendations to widen the CP market by the introduction of assed-backed commercial paper and additional intra-day Liquidity Adjustment Facility to stabilise short-term interest rates too are being considered.

Measures for the forex market include allowing cancellation and rebooking of all eligible forward contracts, irrespective of tenor, extending the time of forex market by one hour to 5 pm, dissemination of additional information include trading volumes for derivatives such as foreign currency-rupee options to the market and allowing banks to approve proposals for commodity hedging in international exchanges from their corporate customers.
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