The rupee ended stronger at 59.15 against the dollar after the Reserve Bank of India modified the liquidity tightening measures on Tuesday to curb volatility in the currency markets.
The Reserve Bank of India, on Tuesday, further reduced banks' borrowing limit under repo-window effectively to Rs 34,450 crore per day. Also, to suck out excess liquidity from the system, it mandated banks to maintain a minimum daily cash reserve ratio (the slice of deposits they have to park with the RBI) balance of 99 per cent of the requirement against 70 per cent earlier.
The Indian unit, which had closed at 59.77 on Tuesday, swung between a high of 59.01 to a low of 59.60 in intraday trade.
However, the rupee’s gain could be short-lived, according to market participants. They believe that unless there is a clear guidance from the central bank in its monetary policy statement next week, the currency, bond and government securities market will remain volatile.
“It is very difficult to predict anything now. Markets are confused if the RBI will hike interest rates, cut it or stay put,” said a deputy general manager, in-charge of treasury operations, of a state-run bank. He did not wish to be named.
However, he said, thanks to the central banks’ measures the liquidity now is evenly distributed and not skewed.
Moreover, month end demand for the American currency from oil importers is likely to keep the Indian unit pressurised.
Call rates and G-Sec yields rise
The interbank call money rates, the rate at which banks borrow from each other to meet their short term liquidity requirements, closed at 7 per cent from previous close of 6.50 per cent. The call rates had opened sharply higher at 10 per cent.
The call rates could rise further as experts believe that liquidity constraint and restrictions on bank borrowings from the repo window could lead banks to borrow more from each other. According to economists, these rates could range anywhere between 9.5 per cent to 10.5 per cent over the next fortnight.
The 7.16 per cent benchmark government security (G-Sec), which matures in 2023, crashed by Rs 1.57 to Rs 91.65 (Rs 93.22 on Tuesday ) . Yields hardened sharply at 8.42 per cent from previous close of 8.17 per cent.
The G-Sec price rose touched a low Rs 91.18 in intraday trade with yields rising to as much as 8.50 per cent after Reserve Bank of India agreed to pay very high interest on three-month and one-year treasury bill. The Central bank agreed to pay as much as 11 per cent on three month t-bills worth Rs 7,000 crore and 10.46 per cent on t-bills worth Rs 5,000 crore. These yields are the highest the RBI has agreed to pay in at least six years of auction, market men said.