Primary issuances rose today as mutual funds expected rates for short-term papers to fall further post vote-on-account, dealers said.
Suresh Tendulkar said today that the Reserve Bank of India (RBI) might cut interest rates post vote-on-account.
The United Progressive Alliance government will seek a vote-on-account on February 16. Short-term money market rates are most affected if the central bank cuts key interest rate.
“Mutual funds are receiving inflows in their liquid plans and have also been holding on to cash since a long time. But after the remarks made by PM panel head, chances are that the rates could fall further,” said a fund manager at a mutual fund. Today, banks placed CDs worth Rs 1,500 crore against Rs 1,800 crore on Tuesday, while commercial paper worth Rs 1,150 crore were placed today. According to dealers, the rates on certificates of deposit (CDs) could fall by 25 basis points if the RBI cuts interest rates in end-February.
According to dealers, banks usually issue CDs prior to March to adjust their asset-liability mismatches. Three-month CDs were quoted at 5.90-6.15 per cent, unchanged from Tuesday. Three-month commercial papers remained unchanged at 9.50-10.00 per cent.
Volumes in the secondary market were subdued today as most of the market participants preferred to invest in the primary market, dealers said. Corporation Bank and State Bank of Mysore’s February CDs were dealt at 4.25 per cent. February maturity CDs were dealt at 4.25-35 per cent, unchanged from Tuesday.
