The interest rates on short-term debt instruments such as call money and certificates of deposits (CDs) are set to fall this week, as banks have met their year-end requirements. These rates had surged in the last quarter of financial year 2010-11, as banks rushed to improve their deposit base.
On Thursday, the last day of financial year 2010-11, the inter-bank call money rate had touched a high of 9.5 per cent, while CDs maturing in the first week of April were being traded at 12 per cent in the secondary market.
“Since the year-end pressure is over, these rates will fall drastically,” said Ajay Manglunia, senior vice-president, Edelweiss Securities.
Three-month CDs are expected to be around eight per cent, dealers said, while the six-month CD rate is seen at 8.5 per cent. Both were close to 10 per cent in end-March.
The interest rates on CDs maturing in a year are likely to fall to nine per cent levels; these were more than 10 per cent during March.
Bankers said demand from banks for deposits will come down, as credit offtake is usually slack in the first quarter of a financial year.
In addition, increased government spending will ease liquidity pressures.
Banks were forced to raise funds from the debt market when initial interest rate raises in term deposits failed to garner funds as expected. Banks went on to offer interest rates as high as 9.25 per cent on fixed deposits.
The Reserve Bank of India (RBI) raised both rates by 25 basis points in the mid-quarter review in March, but banks feel they will not increase these further.
RBI will announce its credit and monetary policy for 2011-12 on May 3. The five-day call money rate ended at 9-9.25 per cent on Thursday.
Money market trading was shut on Friday due to the start of the new financial year and will be closed on Monday, too, for the Gudi Padva festival.
The repo drawdown from RBI’s liquidity adjustment facility was above Rs 1 lakh crore on Thursday, as banks borrowed to meet regulatory requirements for 2010-11.
