Market fears fresh CRR hike

MONEY MARKET ROUND-UP

Even as the market approached towards the second tranche of the cash reserve ratio (CRR) hike, which takes it from 7.75 per cent to 8.00 per cent, the system remains awash with liquidity. CRR is a portion of deposits mobilised by banks and kept with the Reserve Bank of India (RBI) as a statutory requirement every fortnight.

 

RBI mopped up around Rs 50,000 crore from the system through 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 annualised basis.

A lack of credit growth, government expenditure and swapping of rupees to buy dollars in the foreign exchange market remain the main source of liquidity in the market.

Call rates, at which banks lend and borrow funds from each other for daily fund requirement, fell to a low of 4.25 per cent before closing for the day at 5.25 per cent.

Rates in the collateralised borrowing and lending obligation market (CBLO) closed further lower at 4.60 per cent since mutual funds were the main lenders in the market. Banks have raised surplus funds towards the end of the financial year.

G-sec: High yields

Banks were cautious about trading. Surplus liquidity has once again triggered fears of another hike in CRR and hence the market is playing safe, said a dealer.

Moreover, yields in the government securities for benchmark maturities are perceived to have reached the bottom and there are no other fresh triggers for the yields to go further down, said a dealer.

Banks are also busy booking profit by offloading stocks which they bought around the time when RBI announced its annual policy. Towards the end of the week, when banks get ready for paying an enhanced CRR, it is better to carry a light portfolio for avoiding market losses, added a dealer.

The yield on the benchmark ten-year paper 8.24 per cent 2018 closed higher at 7.87 per cent as against 7.77 per cent on Tuesday. Similarly, the benchmark long-term paper 8.33 per cent 2036 closed a tad higher at 8.37 per cent as against 8.33 per cent.

OIS and corporate bonds: Firm rates

The fear of a CRR hike firmed up rates in the overnight interest rate swap (OIS) market. Across maturities, rates firmed up by 2-5 basis points.

Interest rates for long- and short-term instruments in the corporate bonds market firmed up a bit. The interest rate in the ten-year corporate bond has gone up from 9.44 per cent to 9.50 per cent and in the five-year segment, rates moved up from 9.33 per cent to 9. 40 per cent.

State Bank of Bikaner and Jaipur (SBBJ) raised three-month funds at 7.95 per cent, while National Housing Bank had to offer 8.05 per cent on the three-month commercial paper.