The foreign exchange market witnessed heavy intervention by the Reserve Bank of India to stem the rupee appreciation. Backed by huge inflows into the equity market, the spot rupee opened around 39.68 after closing on Wednesday at 39.70/71.

The inflows into the Indian market tracked other emerging markets where major indices such as Nikkei and Hanseng, both went up by 396 points and 634 points respectively. The benchmark Sensex moved up by 229 points.

According to dealers, the one-way appreciation was halted by huge purchase of dollars by the RBI which pushed down the spot rupee to 39.90 to a dollar . "However at these levels, exporters started selling dollars which propped up the rupee", said a dealer . The spot rupee finally closed at 39.72/73 to a dollar.

Annualised premium paid in rupee for booking forward dollars was rangebound since there was interest from both importers to buy dollars and exporters to sell dollars.

While importers were covering for near-term payments, exporters were selling dollars in the forward market across all maturities (usually three-month to a year) . Six-month and one-year annualised premiums closed at 1.14 per cent and 1.27 per cent against 1.09 per cent and 1.25 per cent, respectively, on Wednesday.

Money: Fund flow continues

Liquidity remained easy even as the RBI absorbed surplus liquidity of around Rs 28,000 crore from the market. However there was stray demand for liquidity from banks, which pushed up call rates to highs of 7.25 per cent.

During the end of the day, call rates closed at 6.75 per cent. Rates in collateralised lending and borrowing market closed around 6.25 per cent where the banks could borrow funds placing government securities as collateral.

The liquidity is further expected to improve if the rupee, arising out of the dollar purchases of the RBI, makes its way into the money market.

G-sec: Prices stay flat

Players were wary of excess liquidity in the system following heavy intervention by the RBI to stem the rupee appreciation.

This in turn provoked the apprehension of a hike in cash reserve ratio since the use of bills and bonds under the MSS would be limited to curtailing the excess liquidity and bringing down inflation.

The fear of a hike in CRR made the market jittery. Prices of securities across the maturities remained flat. The yield on the ten-year benchmark security closed at 7.90 per cent against 7.89 per cent on Wednesday.

"Even if Friday marks the closing of the second quarter of the financial year, the market remained cautious. There might be mild trading interest on Friday if the inflation remains subdued which may push down the 10- year benchmark yield to 7.88 per cent. This, in turn, will be the cutoff benchmark rate for valuation of market portfolio," said a dealer. 
 
OIS and corporate bonds: Yields rise

Fear of CRR hike was reflected in the overnight interest rate swap markets. Overnight interest rate swap market is derivative product based on the underlying of the interest rate on the government securities.

According to dealers, banks paid in fixed rate, while received floating rate of interest, thus locking in their payoffs in fixed rate. The yield on the benchmark maturities of one-year and five-year OIS rose to 7.12 per cent and 7.30 per cent against 7.08 per cent and 7.26 per cent on Wednesday.

Corporate bond market remained lacklustre since there was lacklustre trading interest in the secondary market, both in short-term and long-term maturities.

In the primary market, banks raised around Rs 5,000 crore through issuance of certificate of deposits of usually one-year tenure.

The interest rates ranged from 8.75 per cent to 8.80 per cent and various banks that raised funds included Punjab National Bank [Get Quote], associates of State Bank of India [Get Quote], Jammu & Kashmir Bank and IDBI among others.

Global markets: Dollar weakens

Euro and GBP both rallied against dollar. Euro reached to an all time high of $ 1.4174 ( $1.4128) while GBP hovered around $2.0268 ( $2.0160). Yen slightly fell against dollar by ruling at $ 115.30 ( $115.33).