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PNB Gilts finds Rs 15,000cr excess liquidity
New Delhi, July 22: The excess liquidity in markets, according to PNB Gilts, was around Rs 15,000 crore owing to surge in foreign exchange reserves, even as the Reserve Bank said it will make use of all instruments including Open Market Operations for stabilising the markets.
New Delhi, July 22: The excess liquidity in markets, according to PNB Gilts, was around Rs 15,000 crore owing to surge in foreign exchange reserves, even as the Reserve Bank said it will make use of all instruments including Open Market Operations for stabilising the markets.
"Powered by strong forex inflows, the excess liquidity is currently estimated to be in the region of Rs 12,000-15,000 crore," PNB Gilts said in its recent report. Foreign exchange reserves rose by $783 million to touch the record high of over $58 billion for the week ended July 12, mainly due to the revaluation of US dollar vis-a-vis the Euro.
Huge surplus liquidity in the system coupled with news of Government exceeding the Rs 10,000 crore limit of Ways and Means Advances (WMA), led to 'heightened' expectations of imminent auction or OMO by RBI, it said.
The surplus liquidity provided the buying support to the market, even as OMO/auction fears provided significant selling pressure, PNB Gilts said.
"As a result, gilts (Government securities) markets remained in a state of suspended animation for rest of the week as profit-booking prevented significant gains while surplus liquidity prevented any significant slide in prices," it added. After a meeting with Finance Minister Jaswant Singh here recently, RBI Governor Bimal Jalan had said all instruments were available to RBI to stabilise the situation for ensuring that softer interest rate bias remained.
Market apprehension was that RBI may go for OMO to suck out excess liquidity in the monetary system so that interest rates could be maintained at the same level.
PNB Gilts said economic fundamentals coupled with ample liquidity pointed towards a low interest rate regime and that "even the `AAA' rated corporates were now able to raise funds from the market at rates just above the bank rate."
Although the bank rate, which is the rate at which RBI extends refinance facility to banks, was reduced to 6.5 per cent last fiscal from 8.0 per cent in the previous fiscal, the low inflation rate resulted in higher real interest rates. Inflation, as measured by Wholesale Price Index, stood at 1.99 per cent for the latest reported week. Bureau Report
"Powered by strong forex inflows, the excess liquidity is currently estimated to be in the region of Rs 12,000-15,000 crore," PNB Gilts said in its recent report. Foreign exchange reserves rose by $783 million to touch the record high of over $58 billion for the week ended July 12, mainly due to the revaluation of US dollar vis-a-vis the Euro.
Huge surplus liquidity in the system coupled with news of Government exceeding the Rs 10,000 crore limit of Ways and Means Advances (WMA), led to 'heightened' expectations of imminent auction or OMO by RBI, it said.
The surplus liquidity provided the buying support to the market, even as OMO/auction fears provided significant selling pressure, PNB Gilts said.
"As a result, gilts (Government securities) markets remained in a state of suspended animation for rest of the week as profit-booking prevented significant gains while surplus liquidity prevented any significant slide in prices," it added. After a meeting with Finance Minister Jaswant Singh here recently, RBI Governor Bimal Jalan had said all instruments were available to RBI to stabilise the situation for ensuring that softer interest rate bias remained.
Market apprehension was that RBI may go for OMO to suck out excess liquidity in the monetary system so that interest rates could be maintained at the same level.
PNB Gilts said economic fundamentals coupled with ample liquidity pointed towards a low interest rate regime and that "even the `AAA' rated corporates were now able to raise funds from the market at rates just above the bank rate."
Although the bank rate, which is the rate at which RBI extends refinance facility to banks, was reduced to 6.5 per cent last fiscal from 8.0 per cent in the previous fiscal, the low inflation rate resulted in higher real interest rates. Inflation, as measured by Wholesale Price Index, stood at 1.99 per cent for the latest reported week. Bureau Report