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Informist, Thursday, Sept. 17, 2026

By Meera Nair

MUMBAI – Yields on certificates of deposit fell across key tenors after the US Federal Reserve's Federal Open Market Committee decision on rates, while yields on commercial paper moved in opposite directions, despite ample liquidity in the banking system, dealers said. The movements were broadly in line with market expectations after the FOMC decision, with domestic liquidity conditions continuing to have a stronger influence on the CD market than the Fed decision, dealers said.

AAA-rated three-month CD yields fell 5 basis points to 6.10-6.15% from 6.20% Wednesday, while six-month CD yields also declined 5 bps to 6.70-6.75% from 6.75-6.80% in the previous session. There were no trade in the one-year segment. The three-month and February segments were the most active in the CD market.

The decline in CD yields came amid comfortable banking system liquidity, which has reduced banks' immediate need to raise funds through CDs. The recent large mobilisation under Foreign Currency Non-Resident(Bank) deposits has also provided banks with an additional funding cushion, limiting their dependence on short-term market borrowings.

The RBI's net liquidity absorbed--a proxy for the banking system's liquidity surplus--was INR 7.38 trillion Wednesday, down from INR 9.85 trillion Tuesday. Cash balances with the RBI, however, rose to INR 8.16 trillion Wednesday from INR 8.01 trillion Tuesday. The RBI increased the size of its variable rate reverse repo auction to INR 3.0 trillion Thursday from INR 2.5 trillion Wednesday. The central bank accepted all INR 2.40 trillion of offers at the overnight VRRR auction, against the notified amount of INR 3 trillion. According to an Informist poll, the median estimate of 10 market participants was INR 2.34 trillion.

In the CP market, yields showed a mixed reaction. AAA-rated three-month CPs issued by non-banking financial companies rose 10 bps to 6.90-6.95% from 6.80-6.85% Wednesday, while six-month CP yields fell 10 bps to around 7.00% from 7.15%. There were no trade in the one-year segment.

"The Indian CD market is currently being influenced more by domestic liquidity than by the Fed decision in isolation. The large FCNR(B) mobilisation has given banks a significant funding cushion, reducing their immediate dependence on CDs. However, if surplus liquidity normalises while credit growth remains firm, CD issuance could pick up again," Imran Khan, director at EquiRize Securities, said.

The divergent movement in CP yields across tenors reflects differences in demand and supply conditions rather than a uniform reaction to the Fed outcome, dealers said. With liquidity remaining ample, market participants are likely to continue watching the RBI's liquidity operations and upcoming issuances for direction in short-term rates.  More