Insurers, banks buy CDs on expectations of lower rates

Rates in the secondary market fell 25-30 basis points as investors such as banks and insurance companies bought certificate of deposits (CDs) on expectations that rates would fall further, dealers said.

"We expect the rates on one-year CDs to fall by 50 basis points and that on three-month papers by 100 basis points by mid-April," said a dealer with a state-owned bank.

"Mutual funds were selling papers today to meet their redemption requirements, while banks have surplus cash with them and so were investing in CDs on expectations of a further fall in the rates," said a dealer with a mutual fund.

March maturity CDs were dealt in the range of 7.20-7.25 per cent today. Today, CDs maturing in June were dealt at 6.90-7.00 per cent compared with 7.10-7.20 per cent on Thursday.

Issuances of certificates of deposit declined today as mutual funds preferred to remain on the sidelines due to redemption pressure, dealers said. "There were hardly any banks looking to place CDs today as most of them had already issued huge quantum of CDs this month," said a dealer with a mutual fund.

This month, banks placed around Rs 34,000 crore of CDs compared with Rs 23,000 crore in March last year.

Three-month CDs were dealt at 7.10-7.30 per cent, while three-month commercial papers were quoted at 8.75-9.25 per cent today.