Despite a slew of measures by the Reserve Bank to infuse liquidity in the system, the spreads in the money market remain at elevated levels, indicating credit stress. The difference in yield between three-month Mumbai interbank offered rate (Mibor) and three-month treasury bills remains at 450 basis points. It has widened by 340 basis points since August, according to Goldman Sachs report.
The difference between yield on the three-month Mibor and the three-month OIS stands at 550 bps. It has moved up by 480 bps since August. “Although the spreads have stabilised since the RBI first cut the cash reserve ratio (CRR) on October 10, they are still at elevated levels, reflecting heightened credit stress,” said Tushar Poddar, Vice President - Asia Economics Research at Goldman Sachs.
Although the call money rate fell to an average of 7.4 per cent in the week ended November 14 from a peak of 10.5 per cent a fortnight ago, and repo transactions came down to an average of Rs 8,200 crore ($1.7 billion) a day in the first half of November from Rs 25,400 crore ($5.2 billion) a day in the previous fortnight, key money market spreads continue to be elevated, despite several RBI initiatives.
The money supply (M3) growth has moderated to 19.9 per cent on year-on-year (Y-o-Y) basis in the fortnight of October 24 compared to 20.3 per cent in the previous fortnight, due to continuous decline in net foreign exchange assets.
The bank credit growth remained elevated at 28.5 per cent in the week ended October 31 after spiking to 29.4 per cent in early October. The sharp jump in the month was largely a consequence of increased rupee credit as dollar credit from external sources dried up.
Borrowers resorted to taking rupee loans and swapping them for dollars, especially to roll over trade credit. The increase in credit, therefore, does not reflect fresh borrowing by the corporate sector.
he deposit growth was largely unchanged at 20.7 per cent in the week ended October 31 as against 21 per cent in the previous fortnight. The free funds with banks increased after having fallen rapidly over the last few months as the RBI cut cash reserve ratio (CRR) by 250 basis points.