Significant fluctuations in liquidity during the week

Overnight money market liquidity witnessed some drastic fluctuations during the week, from hitting a three month high of Rs. 12.9 billion on 22 November to a near zero the next day as it ended the week on a very marginal surplus of Rs. 0.3 billion.

The Central Bank refrained from conducting any Open Market Operations (OMO) on Friday against a series of repo auctions it conducted during the rest of the week in order to mop up excess liquidity. However, overnight call money and repo rates remained steady throughout the week amidst this volatility to average 10.57% and 9.64% respectively for the week. It was unclear as to the reasons for the sudden diminish in liquidity which was created from dollar inflows into the system during the week.

Continuing with the recent trend at the weekly bill auctions, the weighted averages of the benchmark 91 day, 182 day and 364 day maturities increased by 7, 2 and 8 basis points respectively to levels of 10.74%, 12.07& and 12.81%. Furthermore, Central Bank accepted more than Rs. 22 billion for the first time in over three months at this auction with the 182-day bill dominating the auction in terms of representation.

In secondary bond markets, activity was very moderate throughout the week with the five and six year maturities remaining the most active as yields remained mostly unchanged in comparison to last week’s closing levels. Interestingly the distortion along the yield curve continued for a third consecutive week as specific longer tenure maturities were seen trading below the short tenure ones.

The rupee which was steady at Rs. 130.30 during the first half of the week, went up to a weekly high of Rs. 130 on Friday on the back of dollar inflows into the system and a wearing off on seasonal imports. Given are some forward dollar rates that prevailed in the market on Friday: one month – 131.30, three months – 133.80 and six months – 136.98. (Wealth Trust Securities)