The Hindu Business Line : Rupee & money markets shiver

Feverish Fears
Most players are of the opinion that the depreciation in rupee is only short term as the fundamentals are strong.
The fall in the rupee’s value is more a reaction to the US sub-prime crisis and the crash in the domestic equity market.

Our Bureau

Mumbai, Aug. 17 The fears and uncertainties of the stock market were mirrored in the forex and money markets, which also saw some amount of choppy trade on Friday. Moving in alignment with equities, the rupee opened lower at 41.60 against the dollar and touched a low of 41.71 during the day. But it made good the losses and ended trade at 41.33/34 against Thursday’s close of 41.36/37.

Most market participants are of the opinion that the depreciation in the domestic currency is only short term as the fundamentals are strong. The fall in the rupee’s value is more a reaction to the US sub-prime crisis and the crash in the domestic equity market, said forex dealers.

The bond market also opened on a negative note on fears that liquidity may dry up as foreign investors pull out of the market. However, prices recovered as liquidity was seen to be comfortable and there was a rally in the US securities. Expectations of softer inflation too helped bond prices recover.

On Friday, yields on the 7.99 per cent 10-year benchmark government paper closed at 7.99 per cent, lower than the previous yield of 8.04 per cent. But as the RBI announced auctions worth Rs 3,500 crore next week, the bond market may turn bearish again, said a bond dealer with a private bank.

The call market too saw huge volatility, with rates touching a high of 60 per cent during the day. However, the rates were down to 8-15 per cent at close against the days’ close of around 6 per cent.

Most dealers said this was an aberration and a one-off incident. “This was reporting Friday and Monday is a holiday for money markets in Mumbai. Therefore, banks that require money for other centres too may have borrowed in the call market, leading to a sudden spurt in the call rates,” said a bond dealer.

The country’s foreign exchange reserves also fell by $346 million for the week ended August 10 to touch $228.996 billion, according to figures from the RBI. In the previous week, reserves had increased by $3.992 billion to touch $229.342 billion.