The rupee rose on Friday as the market reacted positively to the relaxation of overseas borrowing norms by the government. The rupee ended the day at 42.45/46 against the dollar, rising from Thursdays close of 42.78/79. It had touched a high of 42.43 during the day, as demand from oil companies also slowed down with crude prices trading below the record highs they had seen recently.
On Thursday, the government announced an increase in external commercial borrowing (ECB) limits for Indian firms, and also as increase in the amount of foreign investment in government and corporate bonds. According to a trader with a private bank, Thursdays announcements have come as a relief to the market, as it will bring in more dollars to the system.
The rupee had risen over 12% last year, riding on the back of foreign inflows to a surging stock market. However, the rupee has been depreciating steadily through May, under pressure from oil companies which continuously bought dollars as crude prices shot to record highs. Also, higher-than-expected GDP figures at 8.8% improved market sentiment.
Forward premia on near term contracts slipped, with the one month contract ending the day at 3.42%(4.12%). The six-month contract ended the day at 2.26%(2.57%), while the annual contract dipped to 1.76%(1.88%).
Liquidity also remained tight, with banks borrowing funds worth Rs 9,630 crore from the Reserve Bank of India, via repo operations of its liquidity adjustment facility. At the same time, one bank parked Rs 30 crore with the RBI via repo operations.
Overnight call rates remained high as liquidity came under a strain. Rates on the inter-bank call market ended the day at 7.00% after touching the days high of 8.00%. Transactions worth Rs 14,377 crore were carried out on the call market. Collateralised borrowing rates ended the day at 6.95% after transactions worth Rs 52,039 crore were made.
Rates risen to a high of 7.75% during the day. Repo rates on the other hand, ended the day at 6.90% after transactions worth Rs 17,080 crore were made.