LAF borrowing drops significantly; Edelweiss

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LAF borrowing drops significantly; short term rates ease on improved liquidity
Government securities
 RBI bought back securities worth INR 100bn against a planned buyback of INR
120bn. It repurchased INR 88bn of the 7.17% 2015 bond and INR 10bn of the
7.99% 2017 bond while the response in the 2019 and 2021 gilts remained muted.
Yields remained range bond today with some value buying emerging in the 7.80%
2020 bond which closed 1 basis lower at 8.06%.

Non-SLR market
 Short term rates tumbled 20-35bps across maturity due the improved liquidity in
the banking system. Banks mopped up INR 50bn through the CD market. State
Bank of India placed INR 9bn of June maturity CD at 9.05% while State Bank of
Travancore placed INR 1bn of April maturity CD at 8.70%. Punjab National Bank
placed one year amounting to INR 5bn at 9.40% and INR 9.25bn of April maturity
CD at between 8.75% -8.80%. Bank of India placed one year CD at 9.43% for a
quantum of INR 8.70bn. National Housing Bank placed end March maturity CP of
INR 5bn at 7.90% while HPCL placed INR 3bn of Feb maturity CD at 7.39%.
Money markets
 Improved liquidity outlook lead to a sharp decline in the overnight rates. Since
November, the central bank has injected INR 500bn through a series of buyback,
in order to ease the liquidity. LAF borrowing dropped to INR 621bn compared to
over INR 1trn in the previous fortnight. Swap rates moved in tandem with the LAF
borrowing pattern since the past two days. The one year swap closed 10 bps lower
at 7.01% while the five year swap closed 4bps lower at 7.71%.
 Call rates eased 20bps to 6.37% while the CBLO rates closed below the central
bank lending rate at 6.20%. Volumes at the CBLO window continued to be robust
at INR 723bn compared to INR 687bn on Tuesday. Although the central bank is
scheduled to conduct another OMO of INR 120bn in the next week, the system
liquidity will continue to remain in the negative mode(1% of NDTL), consistent
with its monetary stance to tackle the soaring inflation.