Forex and debt market update for the week ended January 23, 2009

• The Indian rupee closed lower against US dollar as banks bought dollars noting slump in the domestic equity market amid persistent outflow of foreign funds.
• Further Dollar appreciation against global currencies put downward pressure on the Indian unit.
• However dollar sales by exporters capped further losses for the rupee.
• Meanwhile, India's forex reserves fell by $2.58 bn to $252.18 bn for the week ended January 16.
• Liquidity continued to remain comfortable during the week, with call rates ending little lower at 4.05-4.10% on January 23,, compared with 4.20-4.25% on January 16.
• The coming into effect on January 17 of the 50 bps cut in CRR announced by RBI also improved liquidity in the system, the CRR cut released about Rs.20000 cr into the banking system.
• In the gilt market, prices ended marginally lower during the week as uncertainty over the RBI’s interest rate decision at the third quarter review of monetary policy on January 27 prevailed during the week.
• The benchmark 10-year paper closed at 5.72% YTM on January 23, compared to at 5.60% YTM on January 16.
• Yields ended lower after rising earlier in the week as contradictory statements by PM's Economic Advisory Council cemented views on the interest rate cut decision by the RBI made investors confused.
• Inflation coming in higher at 5.60% for week ended January 10 compared with 5.24% in the week before bought in negative sentiments for gilts.
• Further renewed fears of extra borrowings by the government to supplement its expenditures affected market sentiments.
• Losses were further capped as RBI's big gilt buys under its open-market-operations lifted sentiment and prompted buying on the last day of the week.
• Meanwhile after market hours on January 23, RBI announced T-bill auction worth Rs.9000 cr on January 28.