Informist, Friday, Aug 5, 2022

By Vishal Sangani

MUMBAI – Rates on short-term debt instruments such as certificates of deposit and commercial papers rose as much as 10 basis points today after the Reserve Bank of India's Monetary Policy Committee raised the policy repo rate by 50 bps to 5.40%.

In a poll by Informist, all 30 respondents had expected the rate-setting panel to raise the repo rate, but there was less clarity on the quantum, though majority expected the hike to be in the range of 35-50 bps.

While a 35-bps rate hike was fully factored into the short-term debt papers, the 50-bps hike was not anticipated, dealers said.

Rates on three-month CPs of non-bank finance companies increased to 6.10-6.25% as against 6.00-6.15% on Thursday, while those on papers of manufacturing companies were down 10 bps to 5.90-6.10%.

Rates on three-month CDs were up at 5.80-6.05% as against 5.70-5.95% on Thursday.

Market participants said rates on short-term debt papers may rise in the coming months as the overall policy is hawkish, and as liquidity conditions are expected to tighten significantly from the current levels.

"The RBI will remain vigilant on the liquidity front and conduct two-way fine-tuning operations as and when warranted--both variable rate repo and variable rate reverse repo operations of different tenors, depending on the evolving liquidity and financial conditions", Governor Shaktikanta Das said, while announcing the August monetary policy today.

Depending on the momentum in the economy there would be some volatility in liquidity which will then require intervention through variable rate repo or even open market operations going ahead, said Madan Sabnavis, chief economist, Bank of Baroda.

Liquidity in the banking system is currently estimated to be in a surplus of over 2.14 trln rupees, as against 1.94 trln rupees on Thursday.

The liquidity surplus had widened in the last few days on account of the government's month-end spending in the form of salaries and pension payouts, and inflows redemption of the 8.08%, 2022 bond.

On the issuances side, Indian Oil Corp was the only issuer that tapped the market for its funding needs. The company raised 15 bln rupees through papers maturing on Sep 23 at 5.61%.

On Thursday, companies had raised 13.50 bln rupees through CPs.

On the other hand, banks did not issue any CDs today as there is no immediate need for funds owing to surplus liquidity in the banking system.

On Thursday, Jammu & Kashmir Bank and Canara Bank had raised 7 bln rupees in total through CDs.

--Secondary market

* Indian Bank's CD maturing on Monday was dealt four times at a weighted average yield of 5.1974%

* Tata Steel's CP maturing on Monday was dealt six times at a weighted average yield of 5.2261%

At 1530 IST, following were the volumes, in bln rupees, in the secondary market for short-term debt, as detailed by the Clearing Corp of India's F-TRAC platform:

NOTE: Details of the deals have been received from market sources.

End

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

Edited by Tanima Banerjee

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