Surge in cash flows sends call rates crashing
Swept off the feet by rising cash flows, inter-bank money market rates crashed to 0.25% on Wednesday.
By TNN |
MUMBAI: Swept off the feet by rising cash flows, inter-bank money market rates crashed to 0.25% on Wednesday. Rates on the market for collateralised borrowing and lending obligations (CBLO) have closed in the range of 0.01-0.05%.
Stray deals took place at 1%-levels, said officials at a primary dealership firm. Banks had submitted bids worth Rs 40,000 crore to the central bank, under the liquidity adjustment window for reverse repo operations. However, current stipulations limit the maximum amount that banks can lend on a daily basis to the RBI at Rs 3,000 crore. In the past, call rates had dipped to 0.20%-levels, in April 2000, and to 0.10% in April 1999.
Even as the Reserve Bank of India (RBI) has been emphasising on a tight monetary policy, the past few days have seen cash flows rising largely on account of the central bank’s intervention in the forex market in a bid to prevent the rupee from crossing the 40.50-mark against the dollar.
Treasury officials feel that the Centre could increase the ceiling for issuances of bonds under the market stabilisation route. Alternatively, it is also felt that the government could prepone its borrowing programme in a bid to raise funds at a time when the system is sitting on surplus cash, said UTI Bank’s head-treasury, Partha Mukherjee.
All the same, treasury managers feel that the Central bank may look to tighten the cash reserve ratio, but only as a last resort. If the RBI does hike the CRR now, it could prove destabilising for the system. However, the situation may ease by the beginning of the next week, when the system actually sees an outflow on account of advance tax payments.
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It is also a reporting week, when banks need to fulfill the requirement of maintaining cash — as a percentage of deposits — with the RBI. Treasury officials expect call rates to trade in the 3-4% range, by early next week.Nationalised banks are always on the lending side in the inter-bank call market, while small private sector banks and primary dealers are usually the borrowers. This time around, the state-owned banks, especially SBI and its associates, were flush with cash as a large part of the tax payments were routed through them.
Meanwhile, bond traders were cautious of further central bank intervention and this caused prices of bonds to dip. The yield on the benchmark 7.49% bond maturing in 2017 ended at 8.24 %, up from 8.23 % on Tuesday. The RBI fixed the cut-off price at the auction of 91-day treasury bills (worth Rs 3000 crore) at Rs 98.24, higher than the previous cut-off price of Rs 98.10. Correspondingly, the yield was fixed at 7.18%.
The cut-off price of the 364-day T-bills issued was fixed at Rs 92.91, compared with Rs 92.88 a fortnight ago. The corresponding yield was fixed at 7.65%. The rupee ended at 40.75/76 per dollar, compared with the previous close of 40.80.
Capital inflows remained robust, while worries of central bank intervention faded, amid ample cash in the banking system. Forward premia dipped during the day, as the yield on the one-month premia closed at 1.57%, compared with the previous close of 1.92%. The yield on the six-month premia closed at 2.81% (2.82%), while that on the one-year premia ended at 2.73% (2.75%).
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