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| Yields near 17-month high on inflation risk | | MONEY MARKET ROUND UP |
| Bloomberg / Mar 12, 2010, 00:36 IST |
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The 10-year bonds were little changed, with yields near a 17-month high, on concern investors will pare their holdings as inflation erodes returns.
Investors are holding back from purchases before a government report on March 15 that economists forecast will show the wholesale price-index climbed to 9.67 per cent in February from a year earlier. The government may raise more funds in the first half of the year starting April, Planning Commission Deputy Chairman Montek Singh Ahluwalia said on March 9, ahead of the scheduled Rs 4.57 lakh crore ($100.5 billion) of debt offerings.
“Bonds will move in a narrow range because inflation is expected to accelerate and large supplies of bonds may be there in the initial months,” said Krishnamurthy Harihar, Mumbai- based treasurer at the Indian unit of FirstRand, South Africa’s second-largest financial services company. “Rate hikes will happen to damp inflation.”
The yield on the 6.35 per cent note due January 2020 was at 7.99 per cent at close in Mumbai, according to the central bank’s trading system. The price was at 88.96 per 100 rupee face amount. The yield touched 8.02 per cent on March 9, the highest level since October 2008. The rate may rise to 8.25 per cent by June, Harihar predicted.
 Rupee
The rupee weakened the most in more than a month on speculation oil companies and the government will buy dollars to take advantage of the currency’s gain to a two-month high.
Demand for the greenback from the government could increase in the coming days as it usually needs foreign currency toward the end of a fiscal year to pay interest on its overseas debt and buy defense equipment, said Vikas Babu, a currency trader at the state-owned Andhra Bank in Mumbai. Imports in January gained 35.5 per cent, while exports rose 11.5 per cent, widening the trade deficit to $10.3 billion, the commerce ministry said on March 2.
The rupee weakened 0.6 per cent to 45.61 per dollar at close in Mumbai, according to data compiled by Bloomberg. It touched 45.34 yesterday, its strongest level since January 11.
Call rate
Call money rate ended down today because liquidity was abundant for banks to meet their daily reserve needs, dealers said. One-day call rate closed at 3.30-3.35 per cent compared with Wednesday’s 4.00-4.50 per cent.
CBLOs closed at a weighted average rate of 3.10 per cent compared with 3.13 per cent.
Banks parked lesser funds at the Reserve Bank of India’s reverse repo because a firm CBLO rate in early trades reduced arbitrage opportunity. The CBLOs had risen as high as 3.28 per cent earlier today.
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