The Hindu Business Line : Rupee stable; gilts rally

The Finance Minister, Mr Jaswant Singh's statement in the early half of the day on the Government's preference for softer interest rates has resulted in a drop in the forwards premium.

The six-month premium closed at 4.30 per cent (4.40 per cent) and the twelve-month premium at 4.30 per cent (4.37 per cent).

"The market is heavily discounting a bank rate cut sometime this month, which resulted in the forward premium falling,'' said a dealer in a private bank. The market expects a bank rate cut of up to 50 basis points in August, he added.

"Exporters were seen selling in the market especially after the overnight weaking of the dollar against the euro,'' said a dealer. The dollar has touched 0.9920 against the euro. Nationalised banks were seen absorbing the dollar at 48.65 levels, maintaining the rupee in that range.

The domestic currency opened at 486550 and touched an intra-day high of 48.6450 against the greenback and an intra-day low of 48.6575.

Both papers that the RBI had put up for auction were fully sold with the central bank assigning a cut-off price of Rs 113.85 for the 9.39 per cent 2011 and Rs 85 as the cut-off for the 10.18 per cent 2026 paper.

The RBI received 324 bids for the 9.39 per cent 2011 paper of which 105 were accepted. The weighted average for the paper was Rs 113.95. The RBI received 163 bids out of which 34 were accepted for the 10.18 per cent 2026 paper. The weighted average for the paper was Rs 124.04.

The cut-off prices were slightly higher than the market expectations but prices shot up with their announcement. The market sentiment is bullish and prices are expected to rally on a sustained basis.

The 8.07 per cent 2017 paper touched Rs 104.50, after opening at Rs 104.20 and the 11.50 per cent 2011 paper increased to Rs 128.15 after opening at Rs 127.90.

Prior to the auction also the prices were seen rallying. The market had expected low cut off yields and no devolvement for both the papers. Dealers believe that the ample liquidity conditions will not be affected on account of the Rs 7,000 crore auction outflow.

The call rates closed in the range 5.65-5.75 per cent.

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