Rupee gains to eight-month high

By Wealth Trust Securities

The rupee appreciated during the week from its last week’s closing levels of Rs. 128.50 to an eight month high of Rs 125.75 on Friday.

Export conversions and inflow of remittances ahead of the season coupled with a slowing down of seasonal imports was seen as the reasons behind this appreciation. However the dollar bounced back once again from this low to close the week at Rs. 126.85.

Given are some forward dollar rates that prevailed in the market: one month– 127.90; three months – 129.75; and six months – 132.50

Primary and secondary market Treasury yields continue to head south

The bullish sentiment as a result of the unexpected policy easing continued for a second consecutive week as market liquidity took a U-turn form a three year high deficit of Rs. 15.3 billon on 14 December to a surplus by the latter part of this week. The gathered momentum was further inflated by the weighted average on Central Bank’s repo auctions reflecting a downward trend as well which in turn saw overnight call money and repo rates edge down to average 10.08% and 9.22% respectively for the first four days of the week.

The demand dominated market led to the Central Bank’s borrowing costs to dip drastically at its weekly treasury bill auction while generating more funds for the longer tenure 364 day bill as it represented 58% of the total accepted amount.

On an amalgamated basis weighted averages for the 91 day, 182 day and 364 day bills reflect a decrease of 56 basis points, 57 basis points and 68 basis points receptively to 10.53%, 11.53% and 12.18% respectively, since the cut on policy rates within a span of two weeks reversing an upward trend in rates prior to that.

In secondary bond and bill markets activity was high as the overall yield curve reflected a parallel shift downwards. The six year maturity was the most favoured duration as its yield dipped as much as 100 bp during the week to a low of 11.80%. Furthermore demand for secondary market bills saw the 182 day and 364 day bills change hands at lows of 11.20% and 11.60% respectively.