Call, CBLO rates dip on excess funds

MONEY MARKET ROUND-UP

The market was surplus with liquidity and the Reserve Bank of India (RBI) absorbed around Rs 53,000 crore from the system under the reverse repo window.

Reverse repo is the mechanism through which RBI absorbs excess funds from the market daily and pays 6 per cent on the impounded funds on an annualised basis.

 

A lack of credit growth and excess fund mobilisation by banks before the financial year-end are attributed to be the primary reasons for surplus funds.

Call rates, at which banks lend and borrow funds from each other for their daily requirement, fell to a low of 3.75 per cent, even below the collateralised borrowing and lending obligation (CBLO) rates before finally closing for the day at 4.55 per cent.

In the CBLO market, where non-banking entities like mutual funds lend and borrow excess funds, interest rates fell to 4 per cent before closing higher at 5.75 per cent.

Dealers said these non-banking entities are a bit cautious with funds even if they have surplus money as they apprehend a demand from foreign banks.

Foreign banks were seen swapping rupees for dollars for their custodians (foreign institutional investors), who are booking profits in the equity market.

G-sec: Roller-coaster ride

The government securities market opened on a damp note but rallied after the finance minister allayed fears of rate hikes even if the system was flush with funds.

The prices of government securities rose across maturities, but ended 15-30 paise lower on fears of another cash reserve ratio (CRR) hike. The yields on the benchmark 10-year paper fell to a low of 7.77 per cent during the day before closing at 7.82 per cent. They had closed at 7.79 per cent on Monday.

Similarly, the yield on the benchmark paper for the long term maturity 8.33 per cent 2036 closed at par at 8.33 per cent against 8.32 per cent on Monday.

The cash reserve ratio is a portion of deposits mobilised by the banks and kept with the Reserve Bank of India as a statutory requirement every fortnight.

The dealers expect the cut-off yield on the 91-day and 364 day treasury bills to soften further by 5-10 basis points, given the surplus liquidity in the system. Last week, the cut-off yield on the 91 day t-bills worked out to 7.35 per cent as against 7.43 per cent in the previous week.

OIS: Mixed results

The yields on the overnight interest rate swap market remained flat at 7.16 per cent in the shorter term of one year segment, which is incidentally the top traded maturity in terms of volumes.

However, the yields fell in the longer three-year segment from 7.16 per cent to 7.10 per cent. Overnight interest rate swap market is a derivative product based on the underlying of the interest rate on the government securities

In corporate bonds, there were no primary issues either in the long term or short term segment.

The interest rate at least for short term instruments such as certificates of deposits and commercial papers firmed up by 2-3 basis points due to fears of CRR hikes.