Short-term rates get liquidity relief

Traders expect the situation to improve as government redeems securities

Rates on short-term debt instruments fell by 50-60 basis points on Wednesday on low demand for funds from banks.

The volume of issuances has reduced from the levels seen in the last week of the previous financial year. Oon Wednesdayn Wednesday, banks raised three-month certificates of deposits (CDs) at 10.1 to 10.2 per cent, as compared with 10.7 to 10.8 per cent on Friday. Rates on one-year CDs eased to 10.15 per cent from 10.35-10.5 per cent in the same period.

“Now banks are not in a hurry to accumulate deposits, and liquidity is expected to improve next week,” said T S Srinivasan, general manager (treasury), Indian Overseas Bank.

CD rates had shot across three-year high levels of 11.5 per cent on high demand for funds from banks that wanted to shore up their balance sheets towards the financial year-end, amid high systemic liquidity deficit. On Wednesday, CD issuances were below Rs 1,000 crore, as against Rs 7,000-8,000 crore raised daily last week. Liquidity improved slightly as banks had met their fortnightly borrowing needs in the first week itself.

On Wednesday was the last working day in the fortnight ending April 6.

Traders expect liquidity to improve as government redeems maturing securities, releasing liquidity back into the system. Today, there were inflows of Rs 26,890 crore on account of government bond and treasury bill redemptions.

Banks borrowed Rs 83,795 crore from the Reserve Bank of India (RBI) under liquidity adjustment facility for five days. Repo borrowings had increased to nearly Rs 2 lakh crore last week.

There were concerns in the money markets after the devolvement in the first government borrowing auction held yesterday. About Rs 1,200 crore were devolved on primary dealers in the auction sale of Rs 18,000 crore of dated government securities.

There were outflows of Rs 11,000 crore in the form of treasury bills today. The cut-off for 91-day treasury bills worth Rs 6,000 crore was at 8.81 per cent while 364-day treasury bills, worth Rs 5,000 crore, were sold at 8.34 per cent. RBI had announced a reduction of Rs 3,000 crore in the auction size a day ago.

“Treasury bills’ cut offs were lower than those of previous auctions and in line with the rates on other short-term instruments,” said a bond dealer with a public sector bank.

The government is slated to raise Rs 1.87 lakh crore via treasury bills in April-June.