Short term rates ease sharply; deals to pick-up

Short-term borrowing rates in India eased sharply as the Reserve Bank of India ( RBI) reduced the marginal standing facility (MSF) rate by 75 basis points to 9.50 per cent, making borrowing cheaper for banks and corporates.

India's one-year CD rate is down 16 basis points at 9.60 per cent, while the three-month CD rate falls 10 basis points to 9.80 per cent in secondary trading after the RBI eased some cash tightening steps, as per two dealers.

The central bank had raised the MSF rate to 10.25 per cent in mid-July to tighten market liquidity and bolster the rupee.

Dealers expect short-term paper issuance to pick-up as firms which were waiting on the sidelines for the policy announcements can now take advantage of lower rates.

"Also since this is quarter ending, the RBI easing of MSF has given a good opportunity to banks to raise funds at more reasonable levels," said Ashish Jalan, a manager at fixed income at SPA Securities.

Commercial paper (CP) rates also eased with the three-month rates down 6 basis points at 10.10 per cent, dealers said.

Rate move in the CP market was subdued as the instrument is less liquid compared to CD and has fewer buyers.

The RBI surprised markets by raising interest rates to ward off rising inflation, while scaling back some of the emergency measures put in place to support the ailing rupee.