Short-Ter­mYield­sS­tart­toFall Fol­low­ingRBI’sLiq­uid­i­tyBoost

With the grad­ual re­duc­tion of liq­uid­ity deficit, mar­ket’s com­fort will im­prove and the long-term yields too will start to soften

The Economic Times - - Companies -

Mum­bai: The big­gest im­pact of Re­serve Bank of In­dia gover­nor Raghu­ram Ra­jan’s trans­for­ma­tional shift in liq­uid­ity pol­icy was felt on Wed­nes­day when the yield on the T-Bills auc­tion fell more than 40 ba­sis points in just about a week.

At the rou­tine debt se­cu­ri­ties sales, the cut-off yields — be­low which an in­vestor could not ob­tain al­lot­ment — for the 91-day T-Bills was at 6.85%, down­from7.26%on­thep­enul­ti­mate day of last fis­cal year. Yields on the 182-day trea­sury bills was at 6.93%, lev­el­snot­seen­for­morethanfive­and a half years.

“Short-term yields have started fall­ing while long term yields will grad­u­ally dip,” said Dhawal Dalal, head, fixed in­come, DSP Black­Rock In­vest­ment Man­agers. “As liq­uid­ity deficit grad­u­ally re­duces, then mar­ket com­fort will im­prove.”

RBI’s dec­la­ra­tion that it would end its pol­icy of keep­ing the bank­ing sys­te­mind­eficitof cashand­moveto neu­tral has given the con­fi­dence to banker­sthattheyneed­not­go­toit­for their daily needs on a nor­mal day. The ex­pec­ta­tion is that the RBI will buy more bonds and the US dol­lar flows from the mar­ket which could push the yields down. RBI has de­cided to “pro­gres­sively lower the av­er­age ex ante liq­uid­ity deficit in the sys­tem to a po­si­tion closer to neu­tral­ity” in its mone­tary pol­icy.”

The gov­ern­ment bor­rowed ₹ 15,000 crore col­lec­tively through those se­cu­ri­ties. The yields were 24-45 ba­sis points lower than the pre­vi­ous auc­tion on March 30.

The in­ter-bank call money rate, at which banks bor­row and lend each other, too dropped as low as 6%, 50 ba­sis points lower than the pol­icy rate. Call rates rose as high as 7.45% be­fore the fi­nan­cial year end.

The av­er­age daily liq­uid­ity in­jec­tion (in­clud­ing vari­able rate overnight and term re­pos) in­creased from ₹ 1.34 lakh crore in Jan­uary to ₹ 1.9 lakh crore in March.

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