Volumes rose in the secondary market On Wednesday as rates fell sharply by 30-35 basis points on hopes Reserve Bank of India may soon announce interest rate cuts, dealers said.
“Mutual funds and banks were buying short-term papers On Wednesday as rates were down. There is an expectation that RBI may cut interest rates by this weekend,” said a fund manager with a foreign mutual fund.
These hopes gained momentum on Tuesday after a finance ministry official hinted there may be a rate cut by this weekend. It is expected the central bank will slash repo and reverse repo rates and also banks’ cash reserve ratio.
Any such rate cuts by the central bank directly affects the short-term money market rates.
Banks were also buying CDs in the market with a trading view. On Wednesday, CDs maturing in December were dealt at 6.50-6.60 per cent compared with 6.75-7.25 per cent on Tuesday.
CDS maturing in February were dealt at 7.65-7.85 per cent versus 8.00-8.25 per cent on Tuesday.
Primary market
Mutual funds and state-owned banks were major buyers of primary issues On Wednesday. Around Rs 700 crore of CDs were placed On Wednesday in the market compared with Rs 850 crore on Tuesday. Most mutual funds remained cautious and invested only in specific tenures as they received some inflows in fixed maturity plans On Wednesday.
