Short-term rates rise as banks up CD, CP issuances

Rates on short-term debt instruments increased on Tuesday as tight liquidity conditions, saw banks raise issuances of certificates of deposit (CDs) and commercial paper (CP), dealers said.

“We are beginning to see some pressure on the liquidity side due to advance tax outflows,” a dealer at a bank said. “Borrowing from RBI's Liquidity Adjustment Faci-lity has crossed the Rs 1-lakh crore mark (on Tuesday), indicating that liquidity has tightened.”

On Tuesday, banks borrowed Rs 1.33 lakh crore at RBI’s repo tender, comparedwith Rs 99,990 crore yesterday. The higher borrowing led to talk of the central bank soon conducting open market operations to ease the tightness in liquidity.

Dealers anticipate a spike in issuance in the near term, as banks that had held off fund raising in the hopes of a rate cut by RBI approach the market now. “There is some rollover demand still,” a dealer said. Banks raised around Rs 7,600 crore through CDs on Tuesday, compared with Rs 1,875 crore yesterday, according to data compiled by NW18. On Tuesday, three-month CDs were placed at 9.38-9.48 per cent, compared with 9.34-9.40 per cent yesterday, while one-year CDs were issued at 9.7-9.8 per cent against 9.65-9.70 per cent yesterday. Rates on CP rose as well, tracking the rise in CD rates. On Tuesday, three-month CPs were placed at 9.75-9.85 per cent, as against 9.7-9.8 per cent on Friday.

CDs worth Rs 7,309 crore were traded on Tuesday as against Rs 10,690 crore yesterday, according to data from the Fixed Income MoneyMarket and Derivatives Association. CP worth Rs 1,018 crore were traded, compared with Rs 1,963 crore yesterday.