Banks continued to issue certificates of deposit (CD) today to refinance papers maturating in December, and also on views that rates may rise more if RBI hikes banks’ Cash Reserve Ratio (CRR), dealers said.
“There are rumours of hike in CRR and banks are also refinancing Cds. Banks are issuing CDs on fear that liquidity may tighten going ahead,” a fund manager with a mutual fund said.
Apart from refinancing CDs, banks expect RBI to hike CRR by 50 basis points as a direct measure to drain out excess cash from the banking system.
The move will also signal a possible hike in interest rates.
Most banks also issue CDs at the end of every quarter to build their balance sheets and show better deposit growth.
Rates have risen by almost 50 basis points in the one-year tenure since the last month due to huge supply of CDs and rate hike expectations.
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“Mutual funds are demanding higher rates on views that RBI may cap bank’s investment in mutual funds going ahead due to low credit pick up. Such expectation is also pushing rates up,” a fund manager with a foreign mutual fund said.
Three-month certificates of deposit were quoted at 3.85-4.00 per cent, compared with 3.45-3.70 per cent on Friday.
Three-month commercial papers (CPs) were quoted at 4.20-4.40 per cent compared with 3.80-4.00 per cent on Friday.