The rupee is likely to remain volatile in the near-term as fears about FIIs pulling out of local stocks will keep investors on tenterhooks.
Dollar weakness following US downgrade will support the rupee, though weakness in equities could weigh the Indian currency down, said dealers.
Many companies were trying to cushion their future earnings on Friday by locking in the foreign exchange rate at which export proceeds would be sold.
Banks tapped RBI’s marginal standing facility (MSF) to borrow funds to meet their cash reserve needs for the reporting fortnight.
Banks are losing trading interest in certificates of deposits, or CDs, as their liquidity position has started improving.
RBI bought government bonds worth Rs 1,143 cr in the secondary market, almost double of what it bought in the first two months of this fiscal.
There has been an increase in demand for money market instruments from mutual funds, because of the increasing size of liquid funds.
Four months after the limit was raised to $25 billion from $5 billion, bids by international fund managers to buy infrastructure bonds in India are not even worth a couple of hundred million dollars.
Overnight index swaps market rallied to reflect the jitters in the money markets as the wholesale price index printed higher at 9.06%.
Banks borrowed Rs 78,030 crore through the repo-LAF, or liquidity adjustment facility, a window for banks to meet liquidity demands.
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