Issuers are rushing to raise short-term funds at cheaper rates now that the Reserve Bank of India has cut rates.
RBI cut the repo rate or the rate at which banks borrow from the central bank by 25 bps to 7.50% due to which rates of short-term instruments like Certificate of Deposits (CDs) andCommercial Papers (CPs) have dropped by 20-25 bps.
“After the repo rate cut people were happy to raise their short-term borrowings planned in the month of March at better levels and yields were down by 20-25 bps after the rate cut. These issuers would have paid 20-25 bps more if they had raised before the rate cut,” said Ajay Manglunia, senior vice-president (fixed income), Edelweiss Securities.
CP issuances done yesterday include names like L&T Finance for a tenure of 2 month at 9.05%, IL&FS raised 1 year CP at 8.95% while Tata Capital did it at 8.90% of similar maturity tenure.
CD issuances include names like IDBI Bank which raised 2-3 month CDs at 8.50%, Canara Bank raised 1 year CD at 8.46% while Andhra Bank raised 1 year CD at 8.47%.
“For markets, the next three important events during the month will be inflation release, results of government’s gilt switch programme and release of first half borrowing calendar. Liquidity will remain tight during the month and this may cause volatility in short term/money market rates,” said Bekxy Kuriakose, head – fixed income, Principal PnB