There was little activity in the bond markets last week. The benchmark ten-year paper (GOI 2013, 7.27%) moved in a narrow range of a few basis points. It did, however, snap out its gaining spree of the past four weeks to close lower by 2 basis points at 5.19 per cent.
In the process, bond markets shrugged off the inflation figures, which once again moved up. However, the hardening was marginal and wholesale price based inflation stood at 5.24 per cent for the week ended November 29. The constant stream of comments from the RBI and the finance ministry that inflation was under control finally seems to be having an impact. Volumes at Rs 2,801 crore on the wholesale debt market were 10 per cent lower than previous week. Liquidity remained abundant with daily average subscriptions of Rs 26,968 being received at RBI's repo window.
Buying activity emerged in the market towards the end of the week. Bonds in the medium to longer end rose by 20-70 paise, with yields falling across the board.
The most important development of the week was RBI's announcement giving banks one year to regularise their investments in the debt schemes of mutual funds. Investments by banks in the debt schemes of mutual funds would now continue to be outside the purview of non-statutory liquidity ratio investments till December 2004.
In another development Union Bank of India became the first bank to announce a single benchmark prime lending rate. The bank has fixed its PLR at 10.75 per cent, 25 basis points lower than what was charged earlier. The RBI has been demanding a benchmark PLR as it does not want banks to lend at sub-PLR rates to borrowers in some sectors while neglecting others.
On the currency front, the Indian rupee continued to gain against the dollar. At close of trade last week, the rupee gained five paise over previous week to close at Rs 45.55.
Most of the gains were made at the start of the week and central bank intervention through state run banks halted gains midweek.
Outlook
With no more auctions scheduled till January 2004, liquidity will remain comfortable. Bond prices are expected to remain range-bound. Any indications of credit pick-up in 2004 could give direction to markets.
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