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Informist, Wednesday, Oct. 7, 2026

 

By Meera Nair

 

MUMBAI – Short-term money market rates were volatile after the Reserve Bank of India shifted its monetary policy stance to 'calibrated tightening', which was less expected by market participants, dealers said. However, the 25-basis-point repo rate hike was largely priced in, limiting its impact on yields on certificates of deposit, while commercial paper yields were mixed amid subdued trading activity as market participants remained cautious, they said.

 

Yields on AAA-rated three-month CDs were at 6.45-6.50%, down from 6.50-6.55% on Tuesday, while six-month CD yields were unchanged at 7.00-7.05%. One-year CD yields were at 7.45-7.50%, compared with 7.50-7.55% in the previous session. January-February-March maturities continued to be the most actively traded segments in the CD market.

 

"There was not much change after the repo rate hike as the 25 bps was already priced in. There was limited activity after the announcement, and rates were slightly lower, with no major uncertainty in the market," a dealer from a public sector bank said.

 

The dealer said banks are unlikely to immediately step up CD issuances despite the increase in borrowing costs, as the transmission of the repo rate hike to lending rates would take time. Slower credit growth could eventually prompt some banks to raise funds through CDs, but this is unlikely to happen immediately, the dealer said.

 

"Most demand was seen in the three-month tenure as mutual funds were buying in this segment. So, three-month CD yields are less likely to be affected significantly over the next one to two months," the dealer from the public sector bank said.

 

In the CP market, yields were mixed, with activity remaining subdued in both the primary and secondary markets. Yields on three-month AAA-rated non-banking finance company CPs were at 7.20-7.25%, up from 7.05-7.10% on Tuesday, while six-month yields were at 7.40-7.50%, compared with 7.50-7.55% in the previous session. One-year yields were around 7.90%, largely unchanged from 7.90-7.95% previously.

 

"There were no trades in the CP market as people had less clarity on the levels and continued to be in a wait-and-watch mode. Whatever trades happened, it was mostly in the up-to-three-month segment," a dealer from a brokerage firm said. "Even in the exact three-month segment, there was not much volume."

 

The RBI's net liquidity absorption, a proxy for the banking system's liquidity surplus, was INR 4.99 trillion on Tuesday, down from INR 5.30 trillion on Monday.

 

Dealers said liquidity is likely to tighten gradually as currency in circulation increases during the upcoming festive season. They expect the RBI to continue conducting overnight variable rate reverse repo auctions on a daily basis to manage surplus liquidity.

 

The central bank's Monetary Policy Committee on Wednesday raised the policy repo rate by 25 basis points to 5.50%, the first such increase in over three years. The Standing Deposit Facility rate was raised to 5.25%, while the Marginal Standing Facility rate was raised to 5.75%. 

 

Primary CD market issuances continued to be modest, with just two banks tapping the market — Union Bank of India and UCO Bank.

Both banks raised INR 10 billion each through a 60- and 85-day CD at a weighted average yield of 6.07% and 6.60%, respectively.

 

Meanwhile, issuances were also at the lowest in the primary CP market and rose slightly to INR 11.55 from INR 9.35 billion the previous day, according to data from Clearing Corp. of India. HDFC Securities, Chambal Fertilisers and Chemicals Ltd., Alembic Pharmaceuticals and Chennai Petroleum Corp. Ltd. were among the key CP issuers.

 

HDFC Securities and Chambal Fertilisers and Chemicals raised INR 3 billion each through 65- and 61-days CPs at weighted average yields of 6.95% and 6.55%, respectively. Alembic Pharmaceuticals raised INR 2 billion through a 58-day CP at a weighted average yield of 6.35% and Chennai Petroleum raised INR 1.5 billion through a 14-day CP at 5.85%. 

 

In the secondary market, CD volume fell sharply to INR 61.00 billion from INR 71.80 billion Tuesday, while CP volumes fell to INR 10.65 billion from INR 21.55 billion.

 

On whether CP and CD yields would be affected as the rupee hit a low Wednesday, the dealer from the public sector bank said regulatory intervention is common when the rupee hits its lowest, but it will not affect CP-CD yields. 

 

"The yields will be range-bound until the next MPC as the sentiment will not be built in till the next," the dealer from the public sector bank said. 

 

--Primary market

* Union Bank of India and UCO Bank were the only CD issuers Wednesday.

* HDFC Securities, Chambal Fertilisers and Chemicals Ltd., Alembic Pharmaceuticals and Chennai Petroleum Corp. Ltd. were among the CP issuers Wednesday.  

 

--Secondary market

* Bank of Baroda's CD maturing Nov. 5 was traded once at a weighted average yield of 5.85%.
* NTPC Ltd.'s CP maturing Friday was traded once at a weighted average yield of 5.62%.

 

The following were the volumes, in INR billion, in the secondary market for short-term debt at 1700 IST, as detailed on CCIL's F-TRAC platform:

 

Certificates of deposit		Commercial paper
Wednesday	Tuesday	Wednesday	Tuesday
61.00	71.80	10.65	21.55

 

End

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Edited by Avishek Dutta

 

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