MFs shy away from CBLO as rates dip

Call money rate ended down on Tuesday as liquidity remained ample and demand was modest, dealers said.

The 1-day call rate ended at 0.60-0.75 per cent compared with 1.50-2.00 per cent on Monday.

CBLOs touched an intraday low of 0.01% while weighted average rate was at 0.06 per cent compared with 0.09 per cent on Monday.

Contrary to expectations, mutual funds kept away from lending in CBLOsdue to the sharply lower rates, fund managers said.

"Mutual funds are not heavily lending through CBLOs as it doesn't even cover for operational needs," said Ashish Nigam, debt fund manager at DBS Chola Mutual Fund.

"It doesn't make any economic sense to lend through CBLOs," said a fund manager at a private mutual fund.

There has been talk that mutual funds have been big lenders in CBLO following inflows of around Rs 15,000 crore into their cash plans.

Liquidity continued to be in excess, aided by Reserve Bank of India's dollar purchases and on government spending.

In the past few weeks, RBI has been consistently buying dollars to prevent the Indian unit from rising above the psychological level of Rs 40.50 per $1, thereby boosting liquidity.

OUTLOOK
On Wednesday, the call rate is expected to open around 1 per cent because of the flush liquidity condition in the banking system.

Most banks borrow in excess of their reserve need in the first week of the Reporting Fortnight to avoid borrowing in the second week, when the call rate typically tends to rise.

Call rate is expected to remain soft as demand from banks may taper off towards end of trade. CBLOs are expected to stay around 0.10 per cent.