The rupee liquidity in the money market remained tight on Wednsday, triggering inter-bank call rates to rise to an intraday high of 9.70 per cent. The funds crunch also led to banks rolling over their certificates of deposits (CDs) at 10-15 basis points higher to mobilise resources.
The Reserve Bank of India (RBI) on Wednsday infused around Rs 39,000 crore into the financial system under the repo window. Repo is the instrument through which RBI infuses additional liquidity into the system.
An acute demand for dollars by foreign banks on behalf of their foreign institutional investors (FIIs), who exited the stock markets on Wednsday, led to a tightness in the rupee liquidity. Banks’ rush to raise higher amount to maintain the cash reserve ratio (CRR) requirement next week also led to a demand for funds. CRR is the portion of the total deposits garnered by banks over a fortnight and deposited with RBI as a statutory obligation. Out of the total funds to be maintained, a bank needs to maintain at least 70 per cent on any given day of the fortnight.
Anticipating a liquidity shortage in the shorter term, the interest rate curve in the overnight interest rate swap (OIS) market was inverted on Wednesday (higher rate for the shorter term and lower for the longer term).
While interest rates have gone up across maturities by 20-25 basis points, the one-year OIS is at 9.60 per cent and the five-year OIS is at 9.40 per cent. OIS is a derivatives product based on the underlying of the interest rate on the government securities.
The inverted curve only shows that the tightness is more pronounced in the shorter term rather than in the longer term, said a dealer.
State Bank of Mysore and Indian Bank raised the three-month CDs at 10.90 per cent, while State Bank of Hyderabad paid 10.25 for the 1-month CD and 11.10 per cent for the one-year CD.
Companies and non-banking finance companies had to pay 15-20 basis points higher to raise money. Larsen Toubro Finance paid 11.77 per cent for the one-year commercial paper (short-term instrument of 15 days to one-year tenure for the companies to raise finance), while Sundaram Finance offered 11.68 per cent.
Tata Capital paid 11.30 per cent for the three-month CP. Raymond and Aditya Birla Nuvo raised money for one month to one year at rates ranging between 10.25 per cent to 11.75 per cent.
