The Reserve Bank of India on Monday signalled its comfort with rising interest rates when it announced a cut-off yield of 7.20 per cent at the auction of the five-year (7.55 per cent 2010) government paper.
The RBI floated two government papers -- 7.55 per cent (2010) and 7.95 per cent (2032) -- to raise Rs 8,000 crore and both the papers were fully subscribed by market players. Had the RBI wanted to signal a lower rate, it could have taken a devolvement, at least partially, upon itself, market players said.
The cut-off yield signalled a hike of around 240 basis points in the yield of the 5-year paper since April, when the paper used to rule in the range of 4.80/85 per cent, added dealers.
Devolvement is the process where the RBI takes a part of the auction amount on its own books if it feels the bidding rate is too high or there is no market appetite for the paper.
The 2032 paper was cleared at an yield of 8.24 per cent and the paper was subscribed mostly by life insurance companies, trusts and funds.
Dealers pointed out that foreign bankers were the main buyers of the paper as their portfolio consisted of papers of shorter maturity.
In order to meet the liquidity shortage in the market, bankers sought liquidity under the liquidity adjustment facility (repo) and export refinance, both at 6 per cent.
The exact amount drawn through these routes will be known later. Primary dealers have also availed of the support mechanism at 6 per cent.
The repo facility was used to draw finance to the tune of Rs 3,700 crore. Dealers added that market players had drawn export refinance as well as utilised their repo facility last Saturday as well.
The Reserve Bank of India came to the rescue of the market by infusing rupee funds by buying dollars to the extent of $250-300 million through the public sector banks, said dealers.
Interbank call rates, the rate at which the banks lend or borrow funds for daily liquidity management, went up to 6.95/7 per cent during the day.
Over and above the existing dollar supply, the market also witnessed dollar supplies from exporters. The spot rupee opened at 45.15 but witnessed a high of 44.87, before closing at 45.20 following dollar buying by PSU banks. Since then the spot rupee remained rangebound within 45.08-45.20.
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