Activity in secondary bond markets remains high

Reuters: The rupee ended weaker on Monday as foreign investors extended their selling spree in government securities and on dollar demand by importers, but moral suasion by the Central Bank prevented any sharp fall in the local currency, dealers said.
The spot currency was quoted at 130.50/55 per dollar weaker from Friday’s close of 130.40/45. However, the spot was not traded because of the Central Bank’s moral suasion and the forwards picked up as a results, dealers said.
Three-day forwards or spot next ended at 130.52/58 per dollar, weaker from Friday’s close of 130.45/50.
Currency dealers expect the rupee to weaken on the back of sustained selling of Government securities by foreigners and higher imports in a lower interest rates regime.
“There are bond sales and the central bank’s moral suasion prevented a sharp depreciation,” a dealer said.
Central Bank Governor Ajith Nivard Cabraal, however, said there was no heavy moral suasion as the bond outflow was marginal. “We can easily provide that liquidity because we absorbed those inflows,” he told Reuters. “There are also a number of foreign investors who are willing to buy these bonds. Even last week our net absorption was $15 million. Therefore, we don’t see any need for heavy moral suasion or undue speculation by dealers or the media.”
The Central Bank’s official data showed foreign investors had sold a net Rs. 5.07 billion ($38.90 million) worth of Government securities in the week ended 24 September.
Dealers said concerns over lower returns following the Central Bank’s decision to limit bank deposits under its repo window have prompted some foreign investors to gradually pare their stakes in Government securities.
They cited lower optimism for the currency’s outlook after the central bank on 23 September limited commercial banks’ access to the standing deposit facility.

Reuters: Stocks edged higher on Monday, led by banking shares, but profit-taking in blue-chips and foreign selling in risky assets kept the gains in check.
Stockbrokers expect the rising streak to continue due to lower interest rates and growth optimism.
The main stock index ended up 0.06%, or 4.45 points, at 7,238.16, hovering near a more than three-year high close hit on Tuesday.
Foreign outflows were at Rs. 1.89 billion, the worst performance since 19 August. However, foreign investors have been net buyers of Rs. 8.75 billion in stocks this year.
“There might be some profit-taking. But investors don’t have any alternative to park their money due to low interest rates. So the market will continue its upward momentum with some profit-taking,” said Reshan Wediwardana, Research Analyst at First Capital Equities Ltd.
The day’s turnover was Rs. 3.46 billion ($ 26.5 million), the highest since 11 September and well above this year’s daily average of over Rs. 1.29 billion. Stockbrokers cited block deals for the day’s turnover boost.
People’s Leasing & Finance Plc rose 3.65% to Rs. 19.90. But profit-taking in Aitken Spence and Co Plc and market heavyweight John Keells Holdings Plc weighed on the index.
Aitken Spence fell 1.8% to Rs. 109.30, while Keells edged down 0.08% to Rs. 251.