The yield on government securities and corporate papers may not drop further for the time being despite a 50 basis points cut in short-term repo rate and savings bank interest rate on Friday which followed the one percentage point cut in public provident fund and small savings rate.
The primary reason for this is a sudden tightness in liquididity. Last week over Rs 7,000 crore was sucked of the system on account of first tranche of the Rs 14,000-odd crore state loan. The second round of state loans this month will see further tightness on the liquidity front.
Moreover, there is will advance tax outflow and profit booking by banks in the last month of the fiscal.