MF restriction on big buys leads to lower CD issuances

Banks continued to issue certificates of deposit (CDs) ON Thursday to refinance paper maturing in August and also as the rates remained stable, dealers said.

However, issuance volumes fell ON Thursday because most mutual funds restricted big purchases on limited inflows.

ON Thursday, around Rs 1,000 crore of CDs and commercial papers were placed in the market, compared with Rs 2,200 crore on Wednesday.

“We are refinancing CDs maturing in August. We also hold the view that going ahead rates for short-term papers with rise. So it is better to place CDs now,” said a dealer with a state-owned bank.

 

Market participants expect rates to surge in September because of quarterly corporate advance tax outflows. Rates in the primary market remained steady with downward bias ON Thursday because of adequate liquidity in the system. Rates on three-month CDs were quoted at 3.75-4.00 per cent ON Thursday, unchanged from Wednesday’s levels. Three-month commercial papers were quoted at 4.75-5.10 per cent ON Thursday, compared with 4.90-5.10 per cent on Wednesday. According to dealers, EXIM Bank placed around Rs 100 crore of three-month CPs at 3.70 per cent. However, the bank official refused to confirm the deal. Punjab National Bank had placed Rs 250 crore of CDs maturing on April 15 at 5.50 per cent on Wednesday.