During the past couple of years or so, the economic system has been readjusting itself to the new congenial financial sector environment of a relatively soft interest rate. Therefore, the current policy posture of pushing up rates of interest on the ground of inflation and rising global rates is likely to cause harm. In a developing economy there is enough evidence to prove that"â??even in a world with significant economic integration, the welfare gains from international coordination are likely to be quantitatively small in comparison to gains from domestic stabilisation policy".
������������
Pitfalls of Synchronisation
with Global Policy Trends
During the past couple of years or so, the economic system has been readjusting itself to the new congenial financial sector environment of a relatively soft interest rate. Therefore, the current policy posture of pushing up rates of interest on the ground of inflation and rising global rates is likely to cause harm. In a developing economy there is enough evidence to prove that “even in a world with significant economic integration, the welfare gains from international coordination are likely to be quantitatively small in comparison to gains from domestic stabilisation policy”.
EPW RESEARCH FOUNDATION
IIIII
Interest Rate Hike: PrematurelyInterest Rate Hike: PrematurelyInterest Rate Hike: PrematurelyInterest Rate Hike: PrematurelyInterest Rate Hike: Prematurely
Inspired by an Open EconomyInspired by an Open EconomyInspired by an Open EconomyInspired by an Open EconomyInspired by an Open Economy
ConstructConstructConstructConstructConstruct
T
he initial interpretation of the sudden increase by the Reserve Bank of India of its benchmark reverse repo and repo rates by 25 basis points to 5.75 per cent and 6.75 per cent, respectively, the highest during the past three years, was that it was an instinctive response of the central bank to the longawaited upward revision by the government of petroleum prices and its possible repercussions on the general inflation rate. But now it transpires that the latest measure has more to it than the mere monetarist response, which no doubt is increasingly getting embedded in the central bank’s thinking in the recent period. Admittedly, the global factors are being accorded greater weight in the determination of monetary policy contours than ever before. This is obviously in sync with the authorities’ anxious efforts being made to push for further opening up the economy with the proposed introduction of capital account convertibility.
What has, therefore, been postured for the conduct of monetary policy in India from now on is a deadly combination of monetarism and synchronisation with global policy influences, both of which will tend to destroy any modicum of autonomy that the domestic policies perforce require at this stage of the country’s development. Such a policy posture will also not allow for the pursuit of any social and redistributive goals in macroeconomic programmes, which is an essential condition for a broad-based development of the economy.
Applying the above principles specifically to the question of interest rate policy pursued in India, it may be recalled that in the mid-1990s interest rates were drastically pushed upwards such that the coupon rates on dated securities ruled at a range of 13.25-14 per cent in 1995-96 and the weighted average of lending rates of scheduled commercial banks had touched
17.2 per cent. What followed was persistent recession in the India economy for a prolonged period. Recognising the adverse consequences and admitting that a distinction had to be drawn between developed and developing country markets, the RBI explicitly broke away from the earlier monetarist framework from 1998 onwards and promised to adopt an eclectic monetary policy framework. Under it the RBI applied the very potent weapon of moral suasion, which made it possible for the system to drastically bring down the rates of interest to realistic levels – coupon rates of 6 to 7 per cent and prime lending rates of banks to around 10.50 per cent.
During the past two years or so, the economic system has been readjusting itself to the new congenial financial sector environment of a relatively soft interest rate. Central and state governments have swapped their past high-cost debt for the new debt arrangements with low rates of interest. Corporates, faced as they are by the acute competitive environment, have undertaken considerable financial engineering and drastically reduced their debt service burdens. The manufacturing sector has begun to recover from recession and attain higher levels of output and investment activities.
Against such a background, the current policy posture of pushing up rates of interest on the grounds of inflation and rising global rates is likely to cause harm. Considerable increases in interest rates have already occurred due to this policy posture. In a developing economy context like that of India, there is enough evidence to prove that “even in a world with significant economic integration, the welfare gains from international coordination are likely to be quantitatively small in comparison to gains from domestic stabilisation policy” [quoted from Obstfeld and Rogoff 2002 in RBI 2004]. If domestic policy goals of expanding growth and investment have to be sustained, some degree of insulation of the domestic economy from external influences becomes a necessary condition for success. As it is, these external factors are dominated by such irrational factors as the “twin” deficits of the US and a deeply undervalued yuan of China. For an economy of India’s size, a more autonomous policy posture should be a preferred strategy in such an environment.
The domestic inflation rate has no doubt been rising in the recent period. But, first, the annual rise has been moderate from
3.7 per cent in the third week of March 2006 to 4.7 per cent towards the end of May (as per WPI); last two years around this time the annual rise in WPI had touched 6 per cent. Considering the current stage of development, an inflation rate of about 6 to 6.5 per cent should be considered tolerable so that the cost of containing inflation does not impinge on growth too harshly. Secondly, conventional models of inflation have lost their relevance, particularly in an open economy. There is now the option of containing food price increases by better supply management through imports. That is why the rate of inflation has remained moderate during the past few years, despite monetary
Economic and Political Weekly June 17, 2006
expansion going haywire. Finally, there is to improve liquidity, which resulted in a could influence the domestic inflation rate, enough evidence to prove that inflation in significant shift in the liquidity scenario. the low yield rates prevailing in the month India is primarily structural in character, Besides, the RBI’s decision then to keep of April were considered an aberration. To and any tinkering with monetary variables benchmark rates of interest unchanged had correct these, the authorities began to should be done only to subserve the led to pushing the yields lower to such caution the market: the RBI governor larger goal of supporting an effective levels as those seen in 2004. Against the said that it was constantly watching role for finance in the development backdrop of a record surge in international the firm global oil prices as well as the process and not for controlling inflation, oil prices and initial uncertainty about the domestic inflation rate; it was followed by except for dealing with the extreme hike in US Fed rate as well as surging the finance minister’s statement that an situations of hyper inflation. In this re-domestic credit offtake and an almost upward revision in oil prices could not be spect, the recent calibrated interventions imminent hike in domestic fuel prices which avoided for long. All of these influenced by the RBI, rather successfully, in containing banks’ proclivities to expand credit for
Table 2: Weighted Averages of Daily Call/Notice Rates in Per Cent Per Annum:Table 2: Weighted Averages of Daily Call/Notice Rates in Per Cent Per Annum:Table 2: Weighted Averages of Daily Call/Notice Rates in Per Cent Per Annum:Table 2: Weighted Averages of Daily Call/Notice Rates in Per Cent Per Annum:Table 2: Weighted Averages of Daily Call/Notice Rates in Per Cent Per Annum:
the capital market, real estate and sensitive
Simple Statistical CharacteristicsSimple Statistical CharacteristicsSimple Statistical CharacteristicsSimple Statistical CharacteristicsSimple Statistical Characteristics
commodities, or in promoting credit ex-Month/Week Simple Standard Coefficient Simple Standard Coefficient pansion for agriculture and other informal Mean* Deviation of Variation Mean* Deviation of Variation
(Percentages)$ (Percentages)$
sectors, speaks volumes for the possibili
ties of deploying measures other than the Call Money Notice Money** April 2006
interest rate weapon to achieve credit and
All four weeks 5.62 0.21 3.71 5.56 0.16 2.96monetary policy goals. 28 (RF)* 5.55 0.02 0.29 5.47 0.14 2.57
IIIIIIIIII
7 5.86 0.40 6.87 5.70 0.09 1.52
Money and Forex MarketsMoney and Forex MarketsMoney and Forex MarketsMoney and Forex MarketsMoney and Forex Markets
May 2006
All four weeks 5.52 0.08 1.41 5.56 0.24 4.24 26 (RF)* 5.51 0.06 1.00 5.51 0.38 6.83
primary as well as secondary yields on gilt-5 5.54 0.06 1.06 5.57 0.25 4.56
edged papers rose across maturities de-** Separate reportings began on March 15, 2005.
spite the presence of huge liquidity and the * Including data for reporting Fridays (RF). $ Based on original unrounded figures.
turnover being cautious; and second, the
Table 3:Table 3:Table 3:Table 3:Table 3:
Comparison of Call, Overnight CBLO and Repo RatesComparison of Call, Overnight CBLO and Repo RatesComparison of Call, Overnight CBLO and Repo RatesComparison of Call, Overnight CBLO and Repo RatesComparison of Call, Overnight CBLO and Repo Rates
rupee’s exchange rate depreciated rather
Week-Ending Weighted Average Rates Daily Average Volumes
steeply, possibly as a correction to its over
(in Per Cent) (Rs crore)
valuations. The events in the money and
Call Overnight CBLO Repo Call Overnight CBLO Repo
government securities market were condi
7-Apr-06 5.92 5.30 5.49 12893 14081 9909
tioned partly by the carry-over of influ
14-Apr-06 5.53 5.01 5.09 7989 16364 5147ences of the developments in the months 21-Apr-06 5.58 5.08 5.04 9427 20626 4911 of March and April and partly by the 28-Apr-06 5.54 5.31 5.32 9782 16082 5023
5-May-06 5.58 5.28 5.33 12570 16250 6323
uncertainties surrounding inflation and
12-May-06 5.58 5.14 5.21 10297 16833 9127 interest rates with the alarming upsurge in 19-May-06 5.56 5.15 5.21 12074 20704 9154 international oil prices. Towards the end 26-May-06 5.53 4.93 5.02 8879 15275 10723 of March, RBI had undertaken measures Source: CCIL.
Weighted average of notice money rates: per cent (weekly range) per annum 4.90-5.94 4.90-5.94 5.35-5.77 5.38-5.76 5.32-5.89 5.20-5.81 5.20-5.59 5.23-5.81 5.48-5.56 5.60-5.81 Daily averages (Rupees crore) Total notice market borrowings 2035 1926 2151 1406 2806 2449 2214 2067 2596 3225 (11023) (7703) (12999) Of which: by banks .. .. .. .. .. 2085 -1838 2222 2783
Turnover in term money marketTurnover in term money marketTurnover in term money marketTurnover in term money marketTurnover in term money market
235 212 218 269 243 209 364 222 349 66 (borrowings) $$ (266) (100) (1230)
*Data for reporting Fridays are given within brackets and they are also included in the weekly range/daily averages. $$ No of reporting/traded days is fewer than given above. .. not available.
Economic and Political Weekly June 17, 2006
Weighted Average (Per Cent)
Graph A: Trends in Weighted AveragesGraph A: Trends in Weighted AveragesGraph A: Trends in Weighted AveragesGraph A: Trends in Weighted AveragesGraph A: Trends in Weighted Averages
month much above the prevailing second-the market turned cautious. Further, the
ary market yields, thereby signalling that higher-than-expected annual inflation rate
Call Money Borrowing – May 2006Call Money Borrowing – May 2006Call Money Borrowing – May 2006Call Money Borrowing – May 2006Call Money Borrowing – May 2006
20.5 it was not comfortable with the prevailing of 4.32 per cent and the announcement by
8
low yields. With a view to absorbing surplus the government that a decision will be
7.5 7 15.5
6.5 6 10.5
5.5 5 5.5
(Rupees per US dollar)
liquidity, RBI reactivated the market stabili-made on the proposal of fuel price hike by
sation scheme (MSS). As international oil May 29 sparked concerns over inflation
prices eased for a while, the market senti-thereby resulting in a bearish market. The
ments turned buoyant but it was short-lived report of above 9 per cent GDP growth of
as the US Fed rate was hiked, and the in the last quarter of 2005-06 reinforced
expectation of a similar hike in the bench-fears of a possible rate hike. In the forex
mark rate here began gathering momentum. market, the rupee depreciated as the de-
Meanwhile, the market remained imper-mand for dollar increased for petroleum
vious of the ministerial decision to post-imports as well as for FII disinvestments pone the hike in oil prices, but, as an RBI given the volatility in the domestic stock
4.5
4
May 2006 0.5 deputy governor expressed concern markets, though the RBI intervened Call Money Volume (Rs Cr)
Repo Rates – Outside the RBI
-i about the surge in energy prices not per-sporadically to modulate the currency
ll
Call Rates CBLO Rates
colating into domestic prices adequately, movements. All of these events were so
Graph B: Spot Quotations for US DollarGraph B: Spot Quotations for US DollarGraph B: Spot Quotations for US DollarGraph B: Spot Quotations for US DollarGraph B: Spot Quotations for US Dollar
in the Domestic Inter-Bank Marketin the Domestic Inter-Bank Marketin the Domestic Inter-Bank Marketin the Domestic Inter-Bank Marketin the Domestic Inter-Bank Market
Table 5: Auctions of 182-Day Treasury BillsTable 5: Auctions of 182-Day Treasury BillsTable 5: Auctions of 182-Day Treasury BillsTable 5: Auctions of 182-Day Treasury BillsTable 5: Auctions of 182-Day Treasury Bills
Rupees per US dollar 42.0 44.0 46.0 48.0 50.0 (Daily ) Working Day s May 2006)Monthly Average (Jan 2001 to Apr 2006
(Amount in rupees crore)
Date of Auction
NotifiedAmount
Bids Tendered No Face Value (Amount)
Bids Accepted Subscription Cut-off Cut-off Amount Devolved Price Yield Outstanding No Face Value on PDs (Rupees) Rate on the Date (Amount) (Amount) (Per Cent) of Issue
2005
May 4
1500.00
50
6645.00
8
1500.00
0.00
97.41
5.32
48212
(0)
(0.00)
(0)
(0.00)
[97.42]
[5.30]
May 18
1500.00
38 (0)
3453.00 (0.00)
30 (0)
1500.00 (0.00)
0.00
97.39 [97.40]
5.36 [5.34]
48212
June 1
1500.00
47
4493.00
26
1500.00
0.00
97.40
5.34
48212
2006
(1)
(170.00)
(1)
(170.00)
[97.41]
[5.32]
May 3
1500.00
34
1300.00
14
550.00
0.00
97.12
5.95
7374.36
May 17
1500.00
(2) 41
(552.99) 2800.00
(2) 37
(552.99) 1500.00
0.00
[97.14] 97.05
[5.89] 6.10
9077.36
(2)
(703.00)
(2)
(703.00)
[97.11]
[5.95]
May 31
1500.00
47
4182.50
24
1500.00
0.00
97.01
6.18
10590.79
market sentiments. As a major interest rate
(3) (513.43) (3) (513.43) [97.03] [6.12]
indication, the RBI set the yield at the first
Figures in the square brackets represent weighted average price and the respective yield.central government loan floatation of the Figures in brackets represent numbers and amounts of non-competitive bids which are not included in the total.
Table 4: Auctions of 91-Day Treasury BillsTable 4: Auctions of 91-Day Treasury BillsTable 4: Auctions of 91-Day Treasury BillsTable 4: Auctions of 91-Day Treasury BillsTable 4: Auctions of 91-Day Treasury Bills
(Amount in rupees crore)
Date of Auction
Notified Amount
Bids Tendered
Bids Accepted
Subscription Devolved
Cut-off Price
Cut-off Yield
Amount Outstanding on the Date of Issue
No
Face Value
No
Face Value
on PDs
(Rupees)
Rate
(1)
(2)
(3)
(Amount) (4)
(5)
(Amount) (6)
(Amount) (7)
(8)
(Per Cent) (9)
Total (10)
With RBI (11)
Outside RBI(12)
2005
May 4
2000.00
74 (1)
7437.00 (18.16)
37 (1)
2000.00 (18.16)
0.00
98.72 [98.73]
5.19 [5.15]
29017.15
0.00
29017.15
May 11
2000.00
58
7668.00
49
2000.00
0.00
98.72
5.19
29017.15
0.00
29017.15
May 18
2000.00
(0) 54
(0.00) 7723.00
(0) 6
(0.00) 2000.00
0.00
[98.73] 98.73
[5.15] 5.15
29817.15
0.00
29817.15
(2)
(1000.00)
(2)
(1000.00)
[98.73]
[5.15]
May 25
2000.00
41 (0)
3538.00 (0.00)
35 (0)
2000.00 (0.00)
0.00
98.72 [98.73]
5.19 [5.15]
29817.15
0.00
29817.15
Jun 1
2000.00
39
2498.50
30
2000.00
0.00
98.72
5.19
29830.15
0.00
29830.15
2006
(1)
(363.00)
(1)
(363.00)
[98.72]
[5.19]
May 3
2000.00
48
2749.00
38
2000.00
0.00
98.59
5.74
21003.09
0.00
21003.09
May 10
2000.00
(2) 68
(1444.37) 5791.80
(2) 9
(1444.37) 2000.00
0.00
[98.61] 98.61
[5.64] 5.65
23142.75
0.00
23142.75
(2)
(641.14)
(2)
(641.14)
[98.61]
[5.64]
May 17
2000.00
47 (2)
4949.74 (519.20)
16 (2)
2000.00 (519.20)
0.00
98.61 [98.61]
5.65 [5.64]
24374.52
0.00
24374.52
May 24
2000.00
37
1281.00
13
511.00
0.00
98.60
5.70
23739.77
0.00
23739.77
May 31
2000.00
(1) 52
(6.25) 4056.10
(1) 10
(6.25) 856.10
0.00
[98.60] 98.59
[5.68] 5.74
24404.05
0.00
24404.05
(3)
(770.00)
(3)
(770.00)
[98.59]
[5.72]
Figures in parentheses in cols 3 to 6 represent numbers and amounts of non-competitive bids which are not included in the total. Figures in the square brackets under cols 8 and 9 represent weighted average price and respective yield.
Economic and Political Weekly June 17, 2006
Graph C: AnnualisedGraph C: AnnualisedGraph C: AnnualisedGraph C: AnnualisedGraph C: Annualised
ForwardForwardForwardForwardForward
PremiaPremiaPremiaPremiaPremia
ininininin
Graph D: Yield Curves for DatedGraph D: Yield Curves for DatedGraph D: Yield Curves for DatedGraph D: Yield Curves for DatedGraph D: Yield Curves for Dated
RBI, the turnover increased the highest in
Percentage for the US Dollar in thePercentage for the US Dollar in thePercentage for the US Dollar in thePercentage for the US Dollar in thePercentage for the US Dollar in the
SecuritiesSecuritiesSecuritiesSecuritiesSecurities
– Weighted– Weighted– Weighted– Weighted– Weighted
AverageAverageAverageAverageAverage
forforforforfor
case of repo followed by call market and
Domestic Inter-Bank Market and WeightedDomestic Inter-Bank Market and WeightedDomestic Inter-Bank Market and WeightedDomestic Inter-Bank Market and WeightedDomestic Inter-Bank Market and Weighted
Weeks of May 2006Weeks of May 2006Weeks of May 2006Weeks of May 2006Weeks of May 2006
CBLO (Table 3).
Averages of Call Rates for May 2006Averages of Call Rates for May 2006Averages of Call Rates for May 2006Averages of Call Rates for May 2006Averages of Call Rates for May 2006
8.5
8.0
1st Week 2nd Week 3rd Week 4th Week
Forex Market
8
i t f l l t i t i Weighted Averages of Call Rates (Right Axis) 1-month 3-month 6-month
Yield (per cent per annum)
In May, the pressure on the rupee-dollar
7.5
Per cent per annum
exchange rate to appreciate, exerted by the
6.0
huge inflow of foreign currency assets in
7
the past, waned as the domestic stock
6.5
markets witnessed huge sellings reflecting
4.0
net outflows by FIIs. The inflow of foreign
6
currency assets fell from US $ 8,490 million
in April to US $ 1,911 million in May.
5.5
-0 .5
2.0
Working Days
overwhelming that neither the Moody’s upgradation of its ratings of India’s domestic currency debt outlook to stable from negative on May 4 and revision of India’s long-term foreign currency ceiling upwards with a stable outlook, nor the prime minister’s caution at the Asian Development Bank meeting on capital account convertibility had any effect on the market behaviour.
Call Money Market
Given the improvement in the liquidity scenario following the RBI’s sterilisation activities, improved government’s expenditure and redemption of government securities, the weighted average of call rates ruled generally a little over the reverse repo rate of 5.50 per cent during May (Table 1). Ahead of the first central loan floatation on May 4, the overnight rate firmed up from 5.51 per cent on April 29 to 5.58 per cent on May 2 and remained steady for the next two days, despite outflows. It fell to 5.45 per cent on May 5 and further to 5.33 per cent on May 6. Due to outflows towards state loan floatation, it ruled in a higher range of 5.55-5.58 per cent between May 8 and 11. On the first reporting Friday, May 12, the rate ruled at 5.55 per cent. Except for the dip in overnight rate on May 19 to 5.33 per cent, the rate ruled in a range of 5.49-5.55 per cent despite outflows towards a second central loan floatation. On the second reporting Friday, May 26, the rate dipped to 5.41 per cent, as the banks had already covered their CRR requirements. Thereafter, it ranged between 5.52 and 5.54 per cent and on May 31, the rate ruled at
5.55 per cent.
Overall, there was considerable stability in call rates during May as the coefficient
Moreover, the record level of international Years to Maturity crude oil prices induced a huge demand for dollars from corporates, which wasof variation (CV) slipped from 3.71 per compounded by the hike in the US Fed ratecent in April to 1.41 per cent (Table 2). as importers began covering their expo-Among the three short-term borrowing sures. RBI, on its part, allowed the rupeeinstruments, call, CBLO and repo outside to depreciate against the backdrop of rising
12 34 56 7 8 9 10111213141516171823272930
Table 6: Auctions of 364-Day Treasury BillsTable 6: Auctions of 364-Day Treasury BillsTable 6: Auctions of 364-Day Treasury BillsTable 6: Auctions of 364-Day Treasury BillsTable 6: Auctions of 364-Day Treasury Bills
(Amount in rupees crore)
Date of Notified Bids Tendered Bids Accepted Subscription Cut-off Cut-off Amount Auction Amount Devolved Price Yield Outstanding No Face Value No Face Value on PDs (Rupees) Rate on the Date (Amount) (Amount) (Amount) (Per Cent) of Issue
Figures in the square brackets represent weighted average price and the respective yield.
Figures in brackets represent numbers and amounts of non-competitive bids which are not included in the total.
Table 7: Profile of Major Commercial Bond Issues during May 2006Table 7: Profile of Major Commercial Bond Issues during May 2006Table 7: Profile of Major Commercial Bond Issues during May 2006Table 7: Profile of Major Commercial Bond Issues during May 2006Table 7: Profile of Major Commercial Bond Issues during May 2006
Issuing Company/Rating Nature of Coupon in Per Cent Per Annum Amount in Instrument and Tenor Rs Crore
(1) (2) (3) (4)
FIs/BanksFIs/BanksFIs/BanksFIs/BanksFIs/Banks
1 UCO Bank Perpetual Coupon rate of 9.35 per cent with call option at AA by Crisil and AA- by Fitch Bond the end of 10th year; coupon at 9.85 per cent if call is not excercised 230 2 Indian Overseas Bank Perpetual Coupon rate of 9.15 per cent and call option at AAA by Crisil, AA by Icra Bond 10th year; coupon at 9.65 per cent if call option is not excercised 200 3 Union Bank of India AA + by Crisil Tier-II Bonds 8.50 per cent for 10 years 200 4 Punjab National Bank AAA by Icra and Fitch Tier-II Bonds 8.45 per cent for 118 months 500 (500) 5 State Bank of India Tier-II Bonds 8.80 per cent for 15 years with call option at AAA by Crisil and Care the end of 10 years; coupon rate 9.30 per cent if call option is not excercised 500
6 NABARD Bonds, 7.70 per cent for 3 years with put/call option at
AAA by Care, NCD the end of 1st year, 1167
AAA by Crisil and Care 8.45 per cent for 10 years 250
Central Govt. UndertakingCentral Govt. UndertakingCentral Govt. UndertakingCentral Govt. UndertakingCentral Govt. Undertaking
7 Indian Railway Finance Bonds 8.41 per cent for 10 years 810
Corporation 8.64 per cent for 15 years
AAA by Crisil, Icra and Care
Total:Total:Total:Total:Total:
4377*
Total for May-05 (a year ago): Rs 1,940 crore. Total for Apr-06 (a month ago): Rs 600 crore.
Notes: * Total includes one more issue of less than Rs 50 crore (state government undertaking).
The amount shown in brackets above denotes the greenshoe option of the issue.
Economic and Political Weekly June 17, 2006 current account deficit and the rupee remaining overvalued on a trade-weighted basis. As a result, the rate depreciated by 153 paise from Rs 44.90 to Rs 46.43 as against 36 paise in April (Graph B). The REER (Base: 2003-04 = 100) constructed by the RBI was at 110.02 for March 2006 and it slipped to 107.90 as of April 13, 2006, suggesting that the rupee stands upvalued by about 8 per cent.
Despite the rupee depreciating against the dollar, the forward premia for US dollar steadily declined over the month of May. This unusual phenomenon was probably due to selling of forward dollars by corporates and exporters, thereby increasing the supply of dollars in the forward market, while the importers, expecting the rupee to depreciate further, preferred to refrain from covering their positions resulting in a subdued demand. This was further compounded due to the arbitrage opportunities between the domestic and non-delivery forward (NDF) market. The annualised six-month forward premia declined from 1.54 per cent on May 2 to
0.70 per cent on May 26 (Graph C). However, the fall in case of one-month premia was the steepest from 1.74 per cent to 0.26 per cent over the same period, suggesting that the expected short-term depreciation of the rupee was already discounted.
As per the indicative calendar of issuances, in May, the government mobilised Rs 15,000 crore through two instances. In the first instance, the government reissued on May 4 two loans, 7.59 per cent 2016 and 7.50 per cent 2034, for notified amounts of Rs 6,000 crore and Rs 4,000 crore, respectively, through price-based auctions using multiple price method. As per the revised scheme of underwriting commitment and liquidity support, the primary dealers are required to underwrite the issue under minimum underwriting commitment (MUC) and additional competitive underwriting (ACU). The MUC was set at Rs 177 crore and Rs 118 crore and ACU at Rs 2,991 crore and Rs 1,994 crore for the 10-year and 28-year papers, respectively. For the 10-year security, RBI received 284 competitive bids worth Rs 11,304.11 crore, of which 145 bids worth Rs 5,970.80 crore were accepted at a cut-off yield of 7.55 per cent. For the 28-year security, 185 competitive bids for Rs 8,638.61 crore were received, of which 97 bids for Rs 3,995.25 crore were accepted at a cut-off yield of 8.14 per cent. Both these yields were set above the ruling secondary market yields; a day prior to the issue day, the yield rates ruled at 7.51 per cent and 8 per cent for the 10-year and 28year papers, respectively.
In the second instance, on May 23, the government sold a new 15-year security for a notified amount of Rs 5,000 crore through yield-based auction using uniform price method. For this, the RBI received 153 competitive bids worth Rs 1,1368.50 crore, of which 69 bids for Rs 4,971.35 crore were accepted at a cut-off yield of 7.94 per cent. Even this yield rate was much higher than the secondary yield, as for a 16-year security (8.35 per cent 2022), the YTM on two days prior to the issue date was just 7.69 per cent.
On May 11, 16 state governments sold a 10-year state development loan for an aggregate amount of Rs 5,598.995 crore through a yield-based auction using multiple price auction method. The issues of Punjab, Uttar Pradesh and West Bengal were underwritten by the primary dealers. As against the targeted amount, the RBI received bids worth Rs 14,820.41 crore, of which only Rs 5,017.985 crore were retained. In case of Uttar Pradesh, the issue devolved on primary dealers to the extent of Rs 566.99 crore. In case of Meghalaya and Manipur, against the targeted amount of Rs 50 crore and Rs 19.02 crore, only Rs 40 crore and Rs 15 crore, respectively, were accepted. The cut-off yields ranged between 7.87 per cent and 8.05 per cent. Among these states, Kerala had mobilised funds at 7.65 per cent in the previous month and in May it had to pay 7.87 per cent, which again was the lowest yield among the 16 states.
Treasury Bills
Notwithstanding the surplus liquidity, the yields on treasury bills also increased across maturities and rather sharply, the ostensible reason was the rise in inflation rate. Moreover, the RBI resumed
TTTTT
ableableableableable
9: Repo Transactions in9: Repo Transactions in9: Repo Transactions in9: Repo Transactions in9: Repo Transactions in
Government Paper@ (Other than with theGovernment Paper@ (Other than with theGovernment Paper@ (Other than with theGovernment Paper@ (Other than with theGovernment Paper@ (Other than with the
RBI)RBI)RBI)RBI)RBI)
–––––
May 2006May 2006May 2006May 2006May 2006
Repo Period
Amount
Range of Interest
in Number
(Rupees
(Per Cent
of Days
Crore)
Per Annum)
1
153411.30
3.50-5.60 (5.18)
2
1227.40
4.00-6.60 (5.14)
3
42145.01
4.30-6.60 (5.13)
4
2876.73
4.60-5.50 (5.02)
5
449.00
5.25 (5.25)
6
3.60
5.25 (5.25)
7
459.97
5.00-5.70 (5.23)
9
13.00
5.90-6.70 (6.39)
30
11.00
7.70 (7.70)
90
5.00
8.25 (8.25)
All Issues
1-90
200602.01
3.50-8.25 (5.17)
[1-120]
[121061.58]
[4.00-8.25] [5.28]
@ Cover all types of securities.
Figures in round brackets are weighted average
interest rate; in square bracket, the figure represents
the previous month’s turnover/interest rate.
Table 8:Table 8:Table 8:Table 8:Table 8:
Operations of RBI’s Liquidity Adjustment Facility**Operations of RBI’s Liquidity Adjustment Facility**Operations of RBI’s Liquidity Adjustment Facility**Operations of RBI’s Liquidity Adjustment Facility**Operations of RBI’s Liquidity Adjustment Facility**
(Amount in rupees crore)
Range of Repo (Injection) Reverse Repo (Absorption) Net Injection Net For the Week Repo/RR Bids Received Bids Accepted Bids Received Bids Accepted (+)/ Outstanding (April-May 2006) Period Number Amount Number Amount Number Amount Number Amount Absorption (-) Amount
02 May - 05 May 1-3 0 0 0 0 250 249825 250 249825 -249825 49545 08 May - 12 May 1-3 0 0 0 0 356 305945 356 305945 -305945 49845 15 May - 19 May 1-3 0 0 0 0 344 293415 344 293415 -293415 61815 22 May - 26 May 1-3 0 0 0 0 367 316840 367 316840 -316840 57245
Notes: With effect from January 24,2006 the Repo Rate is 6.50 per cent and Reverse Repo Rate at 5.50 per cent. ** Includes Second LAF Auctions under Repo and Reverse Repo. @ Net of Repo and Reverse Repo Outstandings.
Economic and Political Weekly June 17, 2006
Appendix Table: Secondary Market Operations in Government Paper – RBI’s SGL DataAppendix Table: Secondary Market Operations in Government Paper – RBI’s SGL DataAppendix Table: Secondary Market Operations in Government Paper – RBI’s SGL DataAppendix Table: Secondary Market Operations in Government Paper – RBI’s SGL DataAppendix Table: Secondary Market Operations in Government Paper – RBI’s SGL Data
(Amount in rupees crore)
Descriptions
Week-ending May 2006: Yield to Maturity on Actual Trading
Total for the Month
26
19
12
5
of May 2006
AMT
YTM
CY
AMT
YTM
CY
AMT
YTM
CY
AMT
YTM
CY
AMT
YTM
CY
1 Treasury Bills A 91-Day Bills B 182-Day Bills C 364-Day Bills 2 GOI Dated Securities
620.16 295.60 2232.89
5.68 6.00 6.32
1075.88 1005.50 381.71
5.64 5.93 6.01
516.42 278.37 1275.14
5.63 5.68 5.95
982.15 545.00 1874.34
5.65 5.87 5.61
3194.61 2124.47 5764.08
5.655.895.99
A Regular (Per Cent: Year) 4.83 , 2006
-
-
-
-
-
-
65.00
5.63
4.84
310.00
5.70
4.84
375.00
5.68
4.84
11.50 ,
2006
-
-
-
-
-
-
-
-
-
35.00
5.83
11.48
35.00
5.83
11.48
13.85 ,
2006
-
-
-
35.00
5.85
13.57
-
-
-
24.00
5.76
13.53
59.00
5.81
13.55
13.85 ,
2006 INSTAL
-
-
-
45.00
5.76
13.74
-
-
-
-
-
-
45.00
5.76
13.74
11.50 ,
2007
1.10
6.55
10.82
-
-
-
60.00
6.40
10.78
-
-
-
61.10
6.40
10.78
11.90 ,
2007
10.00
6.45
11.31
705.00
6.46
11.30
120.00
6.33
11.28
10.00
6.31
11.26
845.00
6.44
11.30
12.50 ,
2007
-
-
-
-
-
-
10.00
6.34
11.89
5.00
6.31
11.87
15.00
6.33
11.88
13.05 ,
2007
5.00
6.40
12.34
15.00
6.45
12.33
85.00
6.39
12.31
-
-
-
105.00
6.40
12.31
13.65 ,
2007
-
-
-
-
-
-
22.17
6.33
12.95
-
-
-
22.17
6.33
12.95
9.50 ,
2008
-
-
-
-
-
-
13.81
6.68
9.08
-
-
-
13.81
6.68
9.08
11.40 ,
2008
10.00
6.76
10.41
40.03
6.64
10.39
10.00
6.63
10.37
20.00
6.51
10.33
80.03
6.62
10.37
11.50 ,
2008
71.79
6.72
10.57
-
-
-
-
-
-
-
-
-
71.79
6.72
10.57
11.99 ,
2008
-
-
-
-
-
-
-
-
-
75.00
6.78
10.55
75.00
6.78
10.55
12.00 ,
2008
45.00
6.71
10.96
30.00
6.75
10.97
66.88
6.46
10.90
125.00
6.47
10.89
266.88
6.54
10.91
12.10 ,
2008
54.50
6.73
10.98
75.00
6.68
10.96
-
-
-
-
-
-
129.50
6.70
10.97
12.22 ,
2008
49.76
6.73
11.02
-
-
-
-
-
-
-
-
-
49.76
6.73
11.02
12.25 ,
2008
72.47
6.73
10.99
290.13
6.66
10.97
35.00
6.57
10.94
15.00
6.50
10.91
412.60
6.66
10.97
7.00 ,
2009
10.02
7.01
7.00
-
-
-
35.00
6.84
6.97
-
-
-
45.02
6.88
6.98
7.33 ,
2009 OIL MKT BONDS
-
-
-
200.00
7.36
7.34
25.00
7.39
7.34
-
-
-
225.00
7.37
7.34
11.50 ,
2009
-
-
-
-
-
-
-
-
-
10.44
6.83
10.22
10.44
6.83
10.22
11.99 ,
2009
-
-
-
-
-
-
735.09
6.82
10.58
85.00
6.78
10.56
820.09
6.81
10.58
7.50 ,
2010
0.06
7.01
7.38
-
-
-
4.96
6.94
7.36
30.40
7.85
7.80
35.42
7.72
7.74
7.55 ,
2010
5.00
7.08
7.43
30.00
7.00
7.41
90.00
6.93
7.39
110.00
6.95
7.40
235.00
6.95
7.40
11.30 ,
2010
-
-
-
-
-
-
112.05
7.03
9.82
50.00
7.09
9.82
162.05
7.05
9.82
11.50 ,
2010
-
-
-
-
-
-
-
-
-
126.46
7.07
9.96
126.46
7.07
9.96
12.25 ,
2010
-
-
-
-
-
-
25.00
7.05
10.35
124.44
7.04
10.34
149.44
7.04
10.34
12.29 ,
2010
0.40
7.25
10.59
5.40
7.14
10.62
495.54
7.05
10.52
282.60
7.02
10.50
783.94
7.04
10.51
5.87 ,
2011 FRB
-
-
-
55.00
6.10
5.93
120.00
6.10
5.93
-
-
-
175.00
6.10
5.93
8.00 ,
2011
7.90
7.32
7.78
16.82
7.25
7.76
-
-
-
-
-
-
24.72
7.27
7.77
9.39 ,
2011
262.40
7.18
8.59
677.28
7.15
8.58
265.02
7.05
8.54
225.00
7.04
8.54
1429.70
7.12
8.57
10.95 ,
2011
-
-
-
-
-
-
-
-
-
25.00
7.10
9.43
25.00
7.10
9.43
5.96 ,
2012 FRB
-
-
-
75.00
6.24
6.05
230.00
6.24
6.05
-
-
-
305.00
6.24
6.05
6.85 ,
2012
-
-
-
-
-
-
45.00
7.11
6.94
61.28
7.10
6.93
106.28
7.10
6.93
7.40 ,
2012
155.43
7.28
7.36
427.12
7.25
7.35
523.16
7.18
7.32
385.08
7.17
7.32
1500.78
7.21
7.33
7.27 ,
2013
5.00
7.34
7.30
100.00
7.34
7.30
20.00
7.24
7.26
30.00
7.23
7.25
155.00
7.30
7.28
12.40 ,
2013
-
-
-
-
-
-
-
-
-
86.55
7.27
9.64
86.55
7.27
9.64
7.37 ,
2014
5.00
7.46
7.41
78.00
7.45
7.41
116.50
7.35
7.36
25.00
7.35
7.36
224.50
7.39
7.38
10.00 ,
2014
-
-
-
0.08
7.57
8.74
16.18
7.36
8.78
38.85
7.31
8.61
55.11
7.32
8.66
10.50 ,
2014
-
-
-
3.75
7.58
8.90
6.69
7.36
8.78
-
-
-
10.44
7.44
8.83
6.24 ,
2015 FRB II
-
-
-
145.00
6.12
6.19
125.00
6.12
6.19
-
-
-
270.00
6.12
6.19
7.59 ,
2015 OIL MKT BONDS
-
-
-
-
-
-
-
-
-
100.00
7.53
7.56
100.00
7.53
7.56
9.85 ,
2015
-
-
-
-
-
-
30.00
7.46
8.50
-
-
-
30.00
7.46
8.50
10.47 ,
2015
-
-
-
-
-
-
75.11
7.37
8.74
-
-
-
75.11
7.37
8.74
10.79 ,
2015
-
-
-
-
-
-
-
-
-
15.00
7.33
8.80
15.00
7.33
8.80
11.50 ,
2015
8.52
7.66
9.29
4.25
7.80
9.30
0.05
7.96
9.39
-
-
-
12.82
7.71
9.29
7.59 ,
2016
751.21
7.60
7.60
958.27
7.58
7.59
1319.87
7.52
7.55
3759.81
7.53
7.56
6789.16
7.54
7.57
10.71 ,
2016
-
-
-
20.00
7.68
8.87
-
-
-
-
-
-
20.00
7.68
8.87
7.46 ,
2017
10.00
7.61
7.55
-
-
-
5.33
7.51
7.47
33.05
7.50
7.49
48.38
7.52
7.50
7.49 ,
2017
-
-
-
15.00
7.60
7.61
9.62
7.51
7.50
2.58
7.49
7.50
27.20
7.56
7.56
8.07 ,
2017
13.08
7.68
7.85
150.94
7.66
7.83
319.74
7.59
7.79
262.73
7.57
7.78
746.49
7.60
7.80
6.25 ,
2018
22.75
7.78
7.08
11.35
7.76
7.03
4.91
7.81
7.03
6.25
7.56
6.95
45.26
7.75
7.04
10.45 ,
2018
-
-
-
100.00
7.68
8.61
-
-
-
-
-
-
100.00
7.68
8.61
12.60 ,
2018 ON TAP
-
-
-
10.00
7.79
9.13
0.20
7.56
8.97
-
-
-
10.20
7.79
9.13
10.03 ,
2019
-
-
-
3.50
7.85
8.52
-
-
-
55.00
7.56
8.33
58.50
7.58
8.34
6.35 ,
2020
-
-
-
-
-
-
15.50
7.77
7.20
9.00
7.66
7.14
24.50
7.73
7.18
10.70 ,
2020
0.02
7.65
8.51
4.00
7.91
8.68
0.02
7.68
8.52
55.00
7.59
8.46
59.04
7.61
8.47
7.94 ,
2021
1759.67
7.94
7.94
-
-
-
-
-
-
-
-
-
1759.67
7.94
7.94
10.25 ,
2021
-
-
-
18.30
7.77
8.43
1.57
7.68
8.35
0.12
7.65
8.33
19.99
7.76
8.42
8.35 ,
2022
25.00
7.98
8.08
0.08
7.66
7.86
15.12
7.78
7.92
0.70
7.69
7.88
40.90
7.90
8.02
6.17 ,
2023
3.70
7.85
7.31
8.80
7.71
7.22
4.00
7.63
7.16
11.95
7.71
7.22
28.45
7.72
7.22
10.18 ,
2026
-
-
-
0.37
7.76
8.17
16.91
7.85
8.24
-
-
-
17.28
7.84
8.24
6.01 ,
2028
0.25
8.30
7.80
0.66
7.64
7.32
8.62
7.98
7.49
3.65
7.99
7.55
13.18
7.97
7.50
6.13 ,
2028
3.50
8.01
7.60
3.75
7.93
7.53
2.53
8.06
7.64
4.25
8.00
7.59
14.03
7.99
7.59
7.95 ,
2032
40.43
8.14
8.09
-
-
-
0.69
7.99
7.98
1082.65
7.97
7.99
1123.77
7.97
7.99
7.50 ,
2034
11.22
8.16
8.08
261.97
8.17
8.09
225.44
8.10
8.03
470.13
8.10
8.02
968.76
8.12
8.04
7.40 ,
2035
10.00
8.16
8.09
5.49
8.14
8.06
-
-
-
46.18
8.02
7.94
61.67
8.05
7.97
Sub-total
3453.21
7.65
8.16
4637.90
7.13
8.65
5544.51
7.10
8.46
8250.21
7.52
7.95
21885.83
7.20
8.17
B RBI’s OMO: Sales
45.00
-
-
124.00
-
-
1172.00
-
-
37.00
-
-
1378.00
Purchase
10.00
-
-
15.00
-
-
35.00
-
-
15.00
-
-
75.00
Sub-total
55.00
-
-
139.00
-
-
1207.00
-
-
52.00
-
-
1453.00
(A+B) 3 Market Repo 4 State Govt Securities
3508.21 65886.95 126.25
7.65 7.44
8.16 10.12
4776.90 46047.83 554.71
7.13 7.75
8.65 9.10
6751.51 55792.79 1170.39
7.10 7.84
8.46 7.93
8302.21 32874.41 386.22
7.52 7.43
7.95 23338.83 200601.98 8.43 2237.57
7.20 7.72
8.17 8.43
Grand total (1 to 4)
72670.06
53842.53
65784.62
44964.33
237261.54
(-) means no trading YTM = Yield to maturity in percentage per annum CY = Current yield in per cent per annum SGL = (RBI’s) Subsidiary General Ledger OMO = Open Market Operations Securities with small-size transactions have been dropped from the above list but included in the respective totals, because of aberration in reporting one trade entry, it has also been dropped. Notes: (1) Yields are weighted yields, weighted by the amounts of each transaction. (2) Current yield has not been worked out for treasury bills. (3) For Floating Rate Bonds (FRB’s) current yields
are based on the latest half-year yield determined in the auction.
Economic and Political Weekly June 17, 2006 borrowings under MSS by increasing the notified amounts in addition to the normal borrowings by Rs 1,500 crore for 91-day TBs and Rs 1,000 crore for 182day and 364-day TBs each. Notably, one or two of the auctions in case of each of the three TBs were undersubscribed. The yield on 91-day TBs increased from 5.41 per cent in the auction held on April 26 to 5.74 per cent on May 3, which fell to
5.65 per cent on May 10 and remained steady at it in the auction held on May 17 (Table 4). It, however, increased to 5.70 per cent on May 24 and further to 5.74 per cent on May 31. Unlike the 91-day TBs, the yields on 182-day TBs increased steadily from 5.61 per cent on April 19 to
5.95 per cent on May 3 and further to 6.10 per cent on May 17 and to 6.18 per cent on May 31 (Table 5). Similarly, the yields on 364-day TBs increased from 5.90 per cent on April 26 to 6.25 per cent on May 10 and further to 6.43 per cent on May 24 (Table 6).
Corporate Bonds Market
As against Rs 1,940 crore mobilised in May 2005, the corporate bond market saw the amount mobilised increasing to Rs 4,577 crore (by eight issuers) in this month as against the meagre amount of Rs 600 crore in the previous month. As usual the FIs and banks dominated the market with six out of eight issuers to tap the market who collectively mobilised around Rs 3,547 crore, while the remaining amount of Rs 830 crore was mainly mobilised by a sole central government undertaking (Rs 810 crore); a state level PSU raised a meagre amount of Rs 20 crore (Table 7).
Amongst the FIs and banks, NABARD mobilised the highest amount of Rs 1,167 crore via two different bonds; notably, for a 10-year paper it had to pay a higher coupon rate of 8.45 per cent as compared to 7.60 per cent for a similar maturity paper in January 2006 – an increase of 85 basis points. On the other hand, the Indian Railways Finance Corporation, which mobilised Rs 810 crore through two different bond issues had to offer a higher coupon rate of 8.64 per cent for 15-year bond as compared to 7.74 per cent for a similar maturity paper in December 2005
– an increase of 90 basis points.
Interestingly, despite continued emphasis being given to have the issues rated by a rating agency, Himachal Pradesh Finance Corporation (HPFCL), a state government undertaking, was successful in raising funds successively through an unrated bond issue. In May, it mobilised Rs 20 crore by offering a higher rate of 8.40 per cent for 10-year maturity paper as against 7.48 per cent in October 2004.
Recently, there has been a reversal of the trend, with both the lending banks as well as borrowing corporates showing more inclinations towards term loans rather than corporate bonds in contrast to the mid1990s when the banks used to encourage corporates to go in for bonds rather than term loans given their fears regarding non-performing assets (NPAs). This reversal has been attributed to the fact that banks have incurred huge losses through depreciation on their bond portfolios in 2005-06, as the interest rates have started moving upwards. On the other hand, given the surfeit liquidity in the system, not only the rates on term loans have come down to the levels of bonds or even at times cheaper than bonds but with the passing of SARFAESI Act, the banks can now sell the collaterals pledged for loans in case of a bad asset thereby solving the liquidity problem arising out of bad loan assets.
Despite significant increase in liquidity, the secondary market in gilt-edged papers remained subdued in May due to the prevailing interest rate uncertainty; the weekly turnover ranged between Rs 11,583 crore and Rs 14,407 crore, as against a range of Rs 6,301 crore to Rs 21,126 crore in April. Further, the rise in inflation rate amidst expectations of a hike in domestic fuel prices given the spiralling international oil prices turned the market participants cautious.
As the cut-off yield set by RBI in the first central loan floatation was above market expectations, yields firmed up across maturities and ruled steady in the second week. With the US Fed rate hike fuelling expectations of a similar move in the domestic benchmark rates and the statement by the RBI governor that inflation could pose a concern, the yields jumped significantly in the third week of the month amongst all maturities papers, however, in the last week they remained somewhat steady. These fears were reinforced by the high GDP growth rate figures displaying buoyancy. For instance, the yield on
11.90 per cent 2007 remained steady around 6.31-6.33 per cent for the first two weeks of the month, which jumped to 6.46-6.45 per cent for the last two weeks. During the month, the yield curve turned somewhat flatter as the short-term yields rose sharply, while those on medium and long-term securities rose mildly (Graph D) (Appendix Table).
RBI Reverse Repos, OMOsand MSS
Pursuant to the measures undertaken by the RBI towards end-March with a view to improving liquidity, there was a significant bulge in the size of the reverse repo bids being tendered accompanied by no repo bids in May; the daily average reverse repo bids tendered increased from Rs 49,022 crore in April to Rs 61,678 crore in May (Table 8). Even though the RBI began absorbing liquidity under MSS through treasury bills since May 3, reverse repo bids remained unusually large. Such bids touched a peak of Rs 72,000 crore covering of both the LAFs on May 4, despite the outflows towards the central loan flotation. Similarly, the reverse repo bids in other weeks remained impervious of outflows towards another central loan floatations and state loans.
Unlike the secondary market turnover in government papers, repo transactions outside the RBI increased considerably from Rs 1,21,062 crore in April to Rs 2,00,602 crore in May (Table 9); with bulk of the trading concentrated in the one-day and three-day maturities and at lower discount rates. Probably the increased availability of funds with the non-banks contributed to this phenomenon.
Commercial Bonds
Again, unlike the subdued secondary market for gilt-edged securities, the corporate bond market saw an increase in the daily average turnover from Rs 56 crore in April to Rs 80 crore in May. The turnover in debentures increased sharply from Rs 259 crore in April to Rs 895 crore in May.
l:i
[While Piyusha Hukeri has prepared the initial draft, the required tabular data have been compiled by V P Prasanth.]
IIIII 
Interest Rate Hike: PrematurelyInterest Rate Hike: PrematurelyInterest Rate Hike: PrematurelyInterest Rate Hike: PrematurelyInterest Rate Hike: Prematurely
Inspired by an Open EconomyInspired by an Open EconomyInspired by an Open EconomyInspired by an Open EconomyInspired by an Open Economy
ConstructConstructConstructConstructConstruct 
T
Table 2: Weighted Averages of Daily Call/Notice Rates in Per Cent Per Annum:Table 2: Weighted Averages of Daily Call/Notice Rates in Per Cent Per Annum:Table 2: Weighted Averages of Daily Call/Notice Rates in Per Cent Per Annum:Table 2: Weighted Averages of Daily Call/Notice Rates in Per Cent Per Annum:Table 2: Weighted Averages of Daily Call/Notice Rates in Per Cent Per Annum:
Simple Statistical CharacteristicsSimple Statistical CharacteristicsSimple Statistical CharacteristicsSimple Statistical CharacteristicsSimple Statistical Characteristics 
IIIIIIIIII 
Money and Forex MarketsMoney and Forex MarketsMoney and Forex MarketsMoney and Forex MarketsMoney and Forex Markets 
Table 3:Table 3:Table 3:Table 3:Table 3: 
Comparison of Call, Overnight CBLO and Repo RatesComparison of Call, Overnight CBLO and Repo RatesComparison of Call, Overnight CBLO and Repo RatesComparison of Call, Overnight CBLO and Repo RatesComparison of Call, Overnight CBLO and Repo Rates
Table 1:Table 1:Table 1:Table 1:Table 1: 
Money Market Operations (RBI’s Daily Data)Money Market Operations (RBI’s Daily Data)Money Market Operations (RBI’s Daily Data)Money Market Operations (RBI’s Daily Data)Money Market Operations (RBI’s Daily Data) 
Call MoneyCall MoneyCall MoneyCall MoneyCall Money 
Notice MoneyNotice MoneyNotice MoneyNotice MoneyNotice Money 
Turnover in term money marketTurnover in term money marketTurnover in term money marketTurnover in term money marketTurnover in term money market 
Graph A: Trends in Weighted AveragesGraph A: Trends in Weighted AveragesGraph A: Trends in Weighted AveragesGraph A: Trends in Weighted AveragesGraph A: Trends in Weighted Averages
of Call Rates, Repo Rates, CBLO Rates andof Call Rates, Repo Rates, CBLO Rates andof Call Rates, Repo Rates, CBLO Rates andof Call Rates, Repo Rates, CBLO Rates andof Call Rates, Repo Rates, CBLO Rates and
Call Money Borrowing – May 2006Call Money Borrowing – May 2006Call Money Borrowing – May 2006Call Money Borrowing – May 2006Call Money Borrowing – May 2006 
Graph B: Spot Quotations for US DollarGraph B: Spot Quotations for US DollarGraph B: Spot Quotations for US DollarGraph B: Spot Quotations for US DollarGraph B: Spot Quotations for US Dollar
in the Domestic Inter-Bank Marketin the Domestic Inter-Bank Marketin the Domestic Inter-Bank Marketin the Domestic Inter-Bank Marketin the Domestic Inter-Bank Market 
Table 5: Auctions of 182-Day Treasury BillsTable 5: Auctions of 182-Day Treasury BillsTable 5: Auctions of 182-Day Treasury BillsTable 5: Auctions of 182-Day Treasury BillsTable 5: Auctions of 182-Day Treasury Bills 
Rupees per US dollar 42.0 44.0 46.0 48.0 50.0 (Daily ) Working Day s May 2006)Monthly Average (Jan 2001 to Apr 2006 
Table 4: Auctions of 91-Day Treasury BillsTable 4: Auctions of 91-Day Treasury BillsTable 4: Auctions of 91-Day Treasury BillsTable 4: Auctions of 91-Day Treasury BillsTable 4: Auctions of 91-Day Treasury Bills 
Graph C: AnnualisedGraph C: AnnualisedGraph C: AnnualisedGraph C: AnnualisedGraph C: Annualised 
ForwardForwardForwardForwardForward 
PremiaPremiaPremiaPremiaPremia 
ininininin 
Graph D: Yield Curves for DatedGraph D: Yield Curves for DatedGraph D: Yield Curves for DatedGraph D: Yield Curves for DatedGraph D: Yield Curves for Dated
Percentage for the US Dollar in thePercentage for the US Dollar in thePercentage for the US Dollar in thePercentage for the US Dollar in thePercentage for the US Dollar in the
SecuritiesSecuritiesSecuritiesSecuritiesSecurities 
– Weighted– Weighted– Weighted– Weighted– Weighted 
AverageAverageAverageAverageAverage 
forforforforfor 
Domestic Inter-Bank Market and WeightedDomestic Inter-Bank Market and WeightedDomestic Inter-Bank Market and WeightedDomestic Inter-Bank Market and WeightedDomestic Inter-Bank Market and Weighted
Weeks of May 2006Weeks of May 2006Weeks of May 2006Weeks of May 2006Weeks of May 2006 
Averages of Call Rates for May 2006Averages of Call Rates for May 2006Averages of Call Rates for May 2006Averages of Call Rates for May 2006Averages of Call Rates for May 2006 
1st Week 2nd Week 3rd Week 4th Week 
Table 6: Auctions of 364-Day Treasury BillsTable 6: Auctions of 364-Day Treasury BillsTable 6: Auctions of 364-Day Treasury BillsTable 6: Auctions of 364-Day Treasury BillsTable 6: Auctions of 364-Day Treasury Bills 
Table 7: Profile of Major Commercial Bond Issues during May 2006Table 7: Profile of Major Commercial Bond Issues during May 2006Table 7: Profile of Major Commercial Bond Issues during May 2006Table 7: Profile of Major Commercial Bond Issues during May 2006Table 7: Profile of Major Commercial Bond Issues during May 2006 
FIs/BanksFIs/BanksFIs/BanksFIs/BanksFIs/Banks 
Central Govt. UndertakingCentral Govt. UndertakingCentral Govt. UndertakingCentral Govt. UndertakingCentral Govt. Undertaking 
Total:Total:Total:Total:Total: 
IIIIIIIIIIIIIII 
Primary MarketPrimary MarketPrimary MarketPrimary MarketPrimary Market 
TTTTT
ableableableableable 
9: Repo Transactions in9: Repo Transactions in9: Repo Transactions in9: Repo Transactions in9: Repo Transactions in
Government Paper@ (Other than with theGovernment Paper@ (Other than with theGovernment Paper@ (Other than with theGovernment Paper@ (Other than with theGovernment Paper@ (Other than with the
RBI)RBI)RBI)RBI)RBI) 
–––––
May 2006May 2006May 2006May 2006May 2006
Table 8:Table 8:Table 8:Table 8:Table 8: 
Operations of RBI’s Liquidity Adjustment Facility**Operations of RBI’s Liquidity Adjustment Facility**Operations of RBI’s Liquidity Adjustment Facility**Operations of RBI’s Liquidity Adjustment Facility**Operations of RBI’s Liquidity Adjustment Facility** 
Appendix Table: Secondary Market Operations in Government Paper – RBI’s SGL DataAppendix Table: Secondary Market Operations in Government Paper – RBI’s SGL DataAppendix Table: Secondary Market Operations in Government Paper – RBI’s SGL DataAppendix Table: Secondary Market Operations in Government Paper – RBI’s SGL DataAppendix Table: Secondary Market Operations in Government Paper – RBI’s SGL Data
IVIVIVIVIV 
Secondary MarketSecondary MarketSecondary MarketSecondary MarketSecondary Market 
l:i
ReferencesReferencesReferencesReferencesReferences 
