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Thursday, Oct 16, 2003

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Rupee volatile; 10-year paper breaches 5 pc

Our Bureau

MUMBAI: IT was a second day of high volatility in the local financial markets; the rupee ended on Wednesday at 45.69/70 similar to Tuesday's closing levels, but intra-day movements were as high as 22 paise. With rupee no longer a one-way street, many market participants were seen to be nervous. On Tuesday the rupee had lost as much as 27 paise with no dollar inflow and a huge demand for dollars from Indian corporates.

The domestic currency went as high as 45.5750 with some dollar inflows but went as low as 45.79 when inter-bank dollar demand peaked. Explaining the inter-bank demand , said a dealer in a foreign bank, "because of the rupee fall in the last two days, banks prefer not to take very short positions on the dollar and instead buy up greenbacks towards the end of the day." The market seems to be in a peculiar situation with the dollar forward contracts are at a discount while the spot rupee has dipped. The two markets are moving in divergent directions. "A correction has to take place and the market is hoping that the regulator will intervene," said a dealer in a state-run bank. The six months forward closed at - 1.06 per cent (-1.00 per cent) and the one-year closed at - 0.35 per cent (-0.30 per cent).

In the Government securities market, the 10-year benchmark paper breached the psychological barrier level of five per cent.

Market participants are betting on a bank rate and a repo rate cut in the November Credit Policy. Prices rallied by 25-70 paise across maturities.

The 10-year benchmark paper, the 7.27 per cent 2013, closed at a yield of 4.99 per cent and a corresponding price of Rs 117.62 after gaining 25 paise from Tuesday's closing level of Rs 117.37 and a yield of 5.02 per cent.

Traded volumes as reported on the NSE reporting system were as high as Rs 8,000 crore, up from Rs 5,000 crore yesterday. The prices had rallied on Tuesday too, but only by 15-25 paise. In the longer-term, the 6.25 per cent 2018 paper closed at Rs 109.15 and a yield of 5.32 per cent up, 49 paise from Tuesday's close of Rs 108.66.

The Treasury bill auctions received bids more than double the notified amount with all players attempting to lock into the present yields.

In the inter-bank call money rates were easy at 4.25-4.50 per cent. Through the LAF window, amounts as large as Rs 15,140 crore were accepted, up from Rs 12,000 crore on Tuesday at the repo rate of 4.50 per cent.

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