Forex and debt market update for the week ended January 16, 2009

Û The Indian rupee slid against the US dollar during the week on dollar demand from oil companies and importers
Û FII selling from the local stock market also brought weakness in the Indian rupee
Û Even an unexpected jump in India's industrial production data was unable to revive the rupee, however losses were further capped by dollar sales from exporters
Û Further India’s forex reserves fell by $481 mn to $254.76 bn for the week ended January 9
Û Meanwhile in the call money market, liquidity situation remained adequate, which resulted in call money rate ending steady at around 4.25% for the week, same as in the previous week
Û This being the reporting week for banks for reserve requirements, demand was lower as the banks had borrowed enough in the first week itself,
Û Liquidity was buoyant throughout the week as seen from the huge subscriptions (over Rs 20000 cr daily) at RBI’s twin reverse repo tenders
Û In the government bond market, prices surged during the week on view that RBI would announce Market Stabilisation (MS) bonds in tandem with the scheduled Rs 10000 cr borrowing during the week
Û And as expected, while the RBI conducted auction of three dated securities worth Rs 10000 cr on January 16, it also repurchased Rs 3000 cr of gilt earlier issued under MSS on January 15.
Û Further RBI's choice of gilts sold in auctions on January 16 comforted market participants as all the scripts chosen are liquid and prompted big buying.
Û Inflation coming in at lower than expected figure of 5.24% (48 week low) for week ended January 30 also helped government bond prices
Û Talks of further interest rate cut also helped prices move upwards but comfort from the comments was short-lived as a senior finance ministry official dismissed the talk of more rate cuts.
Û Rise in bonds prices were also trimmed after November industrial production numbers came in unexpectedly stronger.
Û The benchmark 10-year 8.24%, 2018 paper ended at 5.60% yield on January 16, compared to 6.19% yield on January 9Further after market hours on January 16, the RBI announced 10-year state development loans for 8 state governments, worth Rs 6550 cr to be conducted on January 22, it also announced auction of T-bills worth Rs 9500 cr on January 21