One-year CD rates up

Short-term money market instruments’ rates rose 10-15 basis points today as demand from mutual funds fell on caution ahead of advance tax payments, dealers said.

“Rates rose as banks are keen on issuing papers in the market but there is hardly any demand for these papers currently,” said a dealer with a mutual fund.

Mutual funds are mostly investing in non-convertible debentures that have a daily put/call option or are investing in shorter-end papers in the secondary market, dealers said.

Mutual funds will start facing redemptions from banks and companies by next week towards payments for corporate advance tax.

Banks usually issue certificates of deposit (CDs) in March to meet their year-end requirements and thus a fall in demand could push up the rates by a few basis points, dealers said.

The rates could also rise further as Prime Minister’s Economic Advisory Council Chairman Suresh Tendulkar said that there is no immediate need for an interest rate cut by the Reserve Bank of India.

“Hope of a rate cut has fallen, pushing up rates on short-term instruments. Banks are also mostly looking to place only one-year CDs, while mutual funds are refraining from investing in such papers,” said a dealer with a state-owned bank.

Three-month CDs were quoted at 5.80-5.90 per cent compared with 5.70-5.80 per cent on Tuesday.

Three-month commercial papers were quoted at 9.40-9.55 per cent unchanged from Tuesday.

Mutual funds continued purchasing shorter-end papers in the secondary market to deploy the cash they receive in liquid schemes, dealers said.

“Mutual funds are receiving limited inflows in liquid schemes and are preferring to invest smaller quantum in the secondary market,” said a dealer with a mutual fund.

Banks and companies were mostly selling papers in the secondary market.

Rates on CDs in the secondary market also inched up 15-20 basis points today tracking the rise in the primary market, dealers said.

CDs maturing in May were dealt at 5.40 per cent today compared with 5.20 per cent on Tuesday.