Banks continued to issue certificates of deposit (CDs) to refinance papers that mature in August, and on views that rates might rise in September, dealers said.
Mutual funds also refrained from fresh purchases on Wednesday due to limited inflows in their liquid schemes. They also restricted investments in commercial papers (CPs).
On Wednesday, around Rs 2,200 crore of CDs and CPs were placed in the market, compared with Rs 1,600 crore on Tuesday. “Banks are just refinancing CDs that are maturing in August. Rates may rise in September for shorter tenure papers due to corporate advance tax outflows from mutual fund schemes,” said a dealer with a state-owned bank.
Mutual funds typically face redemption from banks and companies in September for payment of corporate advance tax, causing rates for shorter tenure papers to rise.