Liquidity in the banking system during the second week of the fortnight remained tight, averaging at Rs 55,467 cr (~ 0.98% of NDTL); though lower than Rs 70,487 cr of deficit witnessed the week before. Banking system is expected to continue in repo mode, as the festive season approaches. Onset of harvest and festive season is expected to put further pressure on the money market rates, as the credit demand picks up during this period. Money Market rates remained largely stable throughout the week with the overnight MIBOR closing at 8.30% during four out of the five trading days. Average MIBOR was noted at 8.30%, higher than 8.07% witnessed the week before, tracking an increase in key rates administered by RBI on the 16th September. Average Call rate for the week was reported at 8.27, while the overnight collateralized segment averaged at 8.21. T-Bill yields firmed up across all tenors, with a sharper move in longer tenors. CD yields trended down marginally across most of the tenors, while CP yields softened marginally across shorter tenors. T-bill issuance worth Rs 10,000 cr was fully subscribed, however at a higher cut-off yield as compared to the week before. 91-Day T-bill was auctioned at a cut-off yield of 8.44 while the 364-Day T-bill witnessed a cut-off yield of 8.46.
Inflation continues to be sticky and remains a concern, prompting the Central bank to hike policy rates 12 times in mere 18 months – one of the fast paced rate hike ever administered by RBI. Weekly food Inflation figures for the week ending 10 September 2011 was reported at a seven week low of 8.84% - considerably lower than 9.47% reported the week before, tracking a benign base effect. As with the week-on-week (w-o-w) growth, the food article index witnessed a 0.2% growth, seeing upside in select food items such as poultry, fish, gram etc. Primary articles Inflation was noted at 12.17%, lower than 13.04% the week before following a 0.1% w-o-w fall in index. Fuel index rose by 0.8% during the week, with the Fuel & Power Inflation reported at 13.96%, up from 13.01% seen previous week. Monthly headline inflation figure for August was earlier reported at 9.78%, largely in line with the marker expectation of 9.72%.
India’s Sovereign bonds gained and the yield pummeled; tracking a rally in US, UK and German bonds. India’s ten year benchmark 7.8% GOI 2021 closed at a yield of 8.30% on Friday – a 6 bps fall in yields compared to a week before. The turnover on the NDS order matching system averaged Rs 9,247 cr for the week. Corporate bonds in the AAA segment witnessed marginal hardening in their yields, while the yields in AA and AA+ segments softened by 2 – 6 bps, across the 1 – 8 year tenors. The partially convertible Indian Rupee witnessed one of its biggest weekly fall, as FIIs pulled money from the domestic market and rushed to safe haven assets. Spot prices of Indian rupee closed at 49.58 on Thursday, before recovering to 49.43 on Friday on expectation of a possible Central bank intervention. Forward premia rates however firmed up across all tenors with a sharper move in shorter tenors, indicating rupee would continue to weaken in short term. One month forward premia closed at 5.32
