Liquidity woes end, short-term rates slip 200 bps

MUMBAI: Short-term rates have cooled by almost 150-200 basis points as the March effect begins to wane. The fag end of the financial year is generally characterised by high pressure on short-term rates as banks build up their balance sheets.

Three-month certificate of deposit rates came down to almost 8.25-8 .50% from 10.65% on March 4. Bulk deposits have also come off to 9.15-16 % from 10.5% in March when bulk deposit rates peaked. Three-month commercial paper rates also followed the trend, easing to 8.3% from 10.13% on March 23, 2011.

In the collateralised borrowing and lending obligations (CBLO) markets, deals were struck at 0.30%, reflecting the comfort in liquidity in the system. Banks are relieved as the system becomes liquidity surplus. The comfort comes on the back of government spending.

The government expenditure started coming into the system by the last week of March 2011. On Wednesday, banks parked almost Rs 71,045 crore in the reverse-repo window of the central bank and borrowed only about Rs 1,420 crore from RBI's repo window. "The liquidity situation seems to be easing. The topline pressure is off now after March.

The first quarter is generally a slack quarter for credit. I expect the liquidity to remain in the comfortable zone till May," said a senior official from Bank of Baroda . Call rates also closed at 6% from the previous day's close of 6.5%.

Source: EconomicTimes