Mumbai: The overnight rates hovered near a 10-year low on Thursday, driven down by extra cash in the banking system from the central bank’s suspected intervention in the currency market and government spending, even as the rupee gained to a two-week high on expectations that global funds will step up equity purchases.
Call rates ended at 0.25-0.30%, having been as low as 0.15% during trade, from 0.20-0.30% on Wednesday. Traders said the rates had touched a 10-year low of 0.10% in early June.
The surplus cash helped government bond yields edge down. The yield on the 10-year bond ended at 8.23% from 8.24% at the previous close. Traders said the drop in the overnight rates was temporary, and rates could harden next week as the Reserve Bank of India (RBI) was likely to drain cash through bond auctions.
“You may see accelerated borrowing being announced. They may temporarily mop up money through market stabilization scheme (MSS) bonds or a hike in the cash reserve ratio,” said Partha Mukherjee, treasury head of UTI Bank.
Meanwhile, the rupee rose for the second day as investors bid for more than five times the shares on offer locally by ICICI Bank Ltd on the third day of the offer, spurring optimism that overseas investors will buy the stock.
Having advanced by 8.7% this year, the rupee is the second-best performer among 16 actively traded currencies in the Asia-Pacific region, according to data compiled by Bloomberg.
“Demand for Indian stocks is strong, due to prospects that growth will sustain,” said L.V. Prasad, chief currency trader at IndusInd Bank Ltd in Mumbai. “The flows show there is long-term commitment and that will help the rupee.” The rupee advanced 0.1% to 40.705 against the dollar at the 5pm close of trading in Mumbai.
Overseas investors bought $160.1 million (Rs656.41 crore) worth of stocks more than they sold on 19 June, the highest since 29 May, according to market regulator Sebi.
ICICI Bank, a Mumbai-based lender, is seeking to raise $4.3 billion from investors at home and overseas to expand lending and meet new capital rules.
The rupee’s gains were tempered by speculation that refiners will use the currency’s recent gains to buy dollars to reduce costs arising from higher crude oil prices.
Anoop Agrawal of Bloomberg contributed to this story.