Issuances of short-term money market instruments continued to remain thin because investors preferred to stay on the sidelines due to tight liquidity, dealers said.
“The liquidity in the banking system is still tight due to advance tax outflows. Investors are preferring to hold on to cash as they may face further redemptions,” said a dealer with a mutual fund.
Around Rs 30,000 crore will move out of the banking system by Tuesday towards the first instalment of corporate advance tax for 2010-11 (April-March).
Banks are also not keen on issuing certificates of deposit (CDs) as rates have risen significantly over the last month.
Rates on three-month papers have risen by 50-60 basis points over the last month due to tight liquidity.
“We are keen on issuing one-year CDs as the spread between three-month and one-year CDs is around 50-60 basis points. However, investors are refraining from investing in this segment,” said a dealer with a state-owned bank.
Three-month CDs were quoted at 6.15-6.35 per cent unchanged from Friday, while three-month commercial papers (CPs) were quoted at 6.5-6.7 per cent, as against 6.4-6.6 per cent.
One-year CDs were quoted at 6.7-6.9 per cent, compared with 6.6-6.8 per cent Friday.
