Triggered by the concern over global liquidity, foreign banks today tapped the term money market aggressively to raise six-month to one-year funds.
According to dealers, foreign banks may have been sounded out by their parents or overseas offices to remain liquid so as to avoid a spillover impact of global liquidity problems, which have become a serious concern following defaults in the sub-prime lending markets in the US and the UK.
Term money is the market where funds are available from 15-days to a year. One-month term money rates have gone up from 7.05 per cent on Thursday to 7.25 pr cent today and one-year rates moved up from 8.10 per cent to 8.25 per cent.
The demand for liquidity with foreign banks was also partly due to large-scale sale in the equity market resulting in outflow of dollars. The banks need to be comfortable with rupees so that it could be swapped into dollars.
Liquidity in the domestic market is also becoming a concern since the bids received by the Reserve Bank of India under its reverse repo have fallen from a high of Rs 54,000 crore on Monday to a low of around Rs 19,000 crore on Friday. Besides government expenditure, there are no other source of liquidity, said a dealer.
Even if FIIs re-enter the equity market in a big way, it will take a while till the global markets settle, said a dealer. Since there is already pressure on the spot rupee to depreciate, the RBI need not intervene to buy dollars which might otherwise would have added to rupee liquidity after swapping of dollars into rupees, he added.
According to dealers, foreign banks may have been sounded out by their parents or overseas offices to remain liquid so as to avoid a spillover impact of global liquidity problems, which have become a serious concern following defaults in the sub-prime lending markets in the US and the UK.
Term money is the market where funds are available from 15-days to a year. One-month term money rates have gone up from 7.05 per cent on Thursday to 7.25 pr cent today and one-year rates moved up from 8.10 per cent to 8.25 per cent.
The demand for liquidity with foreign banks was also partly due to large-scale sale in the equity market resulting in outflow of dollars. The banks need to be comfortable with rupees so that it could be swapped into dollars.
Liquidity in the domestic market is also becoming a concern since the bids received by the Reserve Bank of India under its reverse repo have fallen from a high of Rs 54,000 crore on Monday to a low of around Rs 19,000 crore on Friday. Besides government expenditure, there are no other source of liquidity, said a dealer.
Even if FIIs re-enter the equity market in a big way, it will take a while till the global markets settle, said a dealer. Since there is already pressure on the spot rupee to depreciate, the RBI need not intervene to buy dollars which might otherwise would have added to rupee liquidity after swapping of dollars into rupees, he added.
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