Banks borrowed Rs 89,900 crore from the Reserve Bank of India’s (RBI’s) repo window on Monday to cope with the liquidity shortage.
Mutual funds, the major investors in short-term papers, preferred to remain on the sidelines on Monday due to tight liquidity and as most are eyeing the Reserve Bank of India’s policy next week, dealers said.
The central bank will hold the second quarter review of its monetary policy on November 2.
“The liquidity is still tight in the system and most fund houses are eyeing the policy next week. There are expectations that the short-term rates could rise next week on view that RBI would raise key policy rates by 25 basis points,” said a dealer with a mutual fund.
“Fund houses are mostly restricting their investments to three-month papers on slight inflows in their liquid schemes,” said a dealer with a mutual fund.
Three-month CDs were dealt at 7.6-7.8 per cent, up from 7.5-7.7 per cent on Friday. Three-month commercial papers were dealt at 8-8.1 per cent, up from 7.9-8 per cent on Friday.
One-year CDs were quoted at 8.45-8.65 per cent, as against 8.4-8.5 per cent on Friday.
According to dealers, Dena Bank placed Rs 200 crore of one-year CDs at 8.515 per cent. United Bank of India placed Rs 100 crore three-month CDs at 7.65 per cent.
Secondary market
Fund houses traded in papers maturing in up to three months to cut losses, dealers said. “Traders are mostly trading in shorter-tenure papers as they expect rates to rise in coming weeks, leading to more losses,” said a dealer with a mutual fund.
