MFs park funds in CDs

Mutual funds purchased short-term money market instruments today on view that rates could fall next week in the wake of persistent ample liquidity in the banking system, dealers said.

“We expect the rates on one-year certificates of deposit (CDs) to fall to 5 per cent by next week. The liquidity is abundant in the system, which is one reason why the rates have fallen,” said a fund manager with a mutual fund.

Short-term rates have already slipped by 60-80 basis points in the last one month due to ample liquidity.

“Mutual funds also purchased papers today as they expect cash to come back into their schemes by next week,” said a dealer with a mutual fund. Banks refinanced the redemption of their existing CDs by borrowing at lower rates today, dealers said.

United Bank of India placed six-month CDs at 4.20 per cent, 20bps down from Monday. Three-month CDs were quoted at 3.30-3.50 per cent, unchanged from Tuesday.