Sharp fall in the weekly food inflation; IIP growth data eyed: Edelweiss

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Sharp fall in the weekly food inflation; IIP growth data eyed
Government securities
 Sovereign bond yields continued to edge lower as sentiment was boosted by the
sharp fall in the weekly food inflation data. However the gains remained capped
ahead of the January industrial output growth data to be released on Friday. The
actively traded 8.13% 2022 bond ended 1 basis lower at 8.04% while the
benchmark ten year bond closed 2bps lower at 7.95%.

 Swap rates ended down sharply since the fall in the weekly food inflation soothed
concerns of any kneejerk rate hike action from the central bank. In the week to
Feb-26, primary articles inflation eased to a low of 13.96% from 14.85% a week
ago. Food inflation, which was hovering in double digits since Nov slipped to a 13
week low of 9.52% from 10.39% a week ago. The five year swap closed 9bps
lower at 7.86% while the one year swap ended at 7.32%, down 6bps from
Wednesday’s close.
Non-SLR market
 Short term instrument saw a sharp fall in levels due to the improvement in the
liquidity and lower dependence of banks on the LAF window. LAF borrowing has
dropped to an average of INR 700bn this fortnight compared to INR 884bn in the
previous fortnight, mainly on account of the draw down of GoI’s cash balance of
INR 250bn. Three month CD rates have eased 35bps to 9.80% during the fortnight
while the one year CD rates have eased to 9.95% level compared to 10.15% a
fortnight ago.
 CD issuance remained strong today due to a sharp rally. Canara Bank placed INR
10bn of three month CD at 9.95% and INR 10bn of 28th June maturity CD at
9.95%. Later in the day Canara Bank placed another 5bn of 27th June maturity CD
at 9.80%. Punjab National Bank placed INR 12bn of three month CD at 9.90% and
INR 6.85bn of one year CD at 9.96%. UCO Bank placed INR 10bn of 28th June
maturity CD at 9.80% towards the end of the day.
Money markets
 Demand for funds from bank’s remained subdued due to the end of the reporting
cycle. The central bank injected INR 600bn into the system compared to INR
550bn on Wednesday. Call rates ended at 6.79% while the CBLO rate ended at
6.46%.