Rates seen falling on RBI liquidity moves
The Financial Express, May 7, 2009, Page 1
By Sunny Verma, New Delhi
For the first time since August 2007, the Reserve Bank of India has rejected some bids by banks wanting to park excess liquidity with it. Three consecutive partial rejections since Monday and RBI's decision to offer banks only one chance a day to buy or sell funds shows the extent to which liquidity has eased in the money market since the gloomy days of September and October 2008.
RBI's decision to offer its liquidity adjustment facility (LAF) only once a day and the partial rejection of bids at the reverse repo window-where banks park funds at 3.25%-over the past three days could goad banks into lowering interest rates, analysts said. Bank credit fell by Rs 25,854 crore in the fortnight ended April 24, after rising by Rs 1,428 cr in the previous fortnight, according to RBI's latest data released on Wednesday.
HDFC Bank chief economist Abheek Barua said the surplus cash would find its way into the call money and government bond markets as commercial banks reorient their investment portfolio to utilise excess cash. RBI's moves also imply that it does not expect the surplus cash to trigger inflation any time soon. "(The cash) could bring down yields and possibly help lower rates," he said. The yield on the ten-year benchmark government bond fell to 6.17% on Wednesday from Tuesday's close of 6.30%.
RBI cancelled its second LAF from Wednesday, except on reporting Fridays. The central bank launched this facility on September 16, 2008 after the collapse of Lehman Brothers resulted in a global cash crunch and pushed up call money rates. Reliance Infrastructure Ltd CEO and director Lalit Jalan described limiting the LAF operation as a "positive step for industry".
Prime Minister's economic advisory council chairman Suresh D Tendulkar was, however, not optimistic on rates going down further. He told FE that RBI's decision to cancel the second LAF "Would not make much of a difference to interest rates. It is basically because of easy liquidity." Call money rates have been within the LAF corridor for quite some time now, so it's sensible to withdraw this additional facility, he said.
That liquidity has been ample can be gauged from the average Rs 1.5 lakh crore that banks have parked every day with RBI since Monday. "The rejection is miniscule, but the direction is clear: RBI wants banks to kick their bad habit and instead start lending," said a senior banker, asking not to be named.
Industry chambers have suggested capping the amount that can be parked in reverse repo.
"The global credit situation has eased dramatically, but lending rates in India are coming down very slowly," said Jalan. Monetary economist Ajay Shah at Delhi-based think tank NIPFP said conducting single daily LAF is more "mechanics than policy".
The yield on the Reuters benchmark five-year corporate bond was lower at 7.59% on Wednesday, down from Tuesday's close of 7.69%. Rates in the call money market ended at 3.10-15%, down from 3.25-40%, as some of the surplus cash of banks found its way into the overnight market.
Analysts said the fall in government bond yields would not be very steep as government borrowings estimated at Rs 3.62 lakh crore in 2009-10 remain high. RBI will auction Rs 12,000 crore worth of government bonds on Friday, while buying back Rs 6,000 crore of bonds through open market operations on Thursday.
The Financial Express, May 7, 2009, Page 1
By Sunny Verma, New Delhi
For the first time since August 2007, the Reserve Bank of India has rejected some bids by banks wanting to park excess liquidity with it. Three consecutive partial rejections since Monday and RBI's decision to offer banks only one chance a day to buy or sell funds shows the extent to which liquidity has eased in the money market since the gloomy days of September and October 2008.
RBI's decision to offer its liquidity adjustment facility (LAF) only once a day and the partial rejection of bids at the reverse repo window-where banks park funds at 3.25%-over the past three days could goad banks into lowering interest rates, analysts said. Bank credit fell by Rs 25,854 crore in the fortnight ended April 24, after rising by Rs 1,428 cr in the previous fortnight, according to RBI's latest data released on Wednesday.
HDFC Bank chief economist Abheek Barua said the surplus cash would find its way into the call money and government bond markets as commercial banks reorient their investment portfolio to utilise excess cash. RBI's moves also imply that it does not expect the surplus cash to trigger inflation any time soon. "(The cash) could bring down yields and possibly help lower rates," he said. The yield on the ten-year benchmark government bond fell to 6.17% on Wednesday from Tuesday's close of 6.30%.
RBI cancelled its second LAF from Wednesday, except on reporting Fridays. The central bank launched this facility on September 16, 2008 after the collapse of Lehman Brothers resulted in a global cash crunch and pushed up call money rates. Reliance Infrastructure Ltd CEO and director Lalit Jalan described limiting the LAF operation as a "positive step for industry".
Prime Minister's economic advisory council chairman Suresh D Tendulkar was, however, not optimistic on rates going down further. He told FE that RBI's decision to cancel the second LAF "Would not make much of a difference to interest rates. It is basically because of easy liquidity." Call money rates have been within the LAF corridor for quite some time now, so it's sensible to withdraw this additional facility, he said.
That liquidity has been ample can be gauged from the average Rs 1.5 lakh crore that banks have parked every day with RBI since Monday. "The rejection is miniscule, but the direction is clear: RBI wants banks to kick their bad habit and instead start lending," said a senior banker, asking not to be named.
Industry chambers have suggested capping the amount that can be parked in reverse repo.
"The global credit situation has eased dramatically, but lending rates in India are coming down very slowly," said Jalan. Monetary economist Ajay Shah at Delhi-based think tank NIPFP said conducting single daily LAF is more "mechanics than policy".
The yield on the Reuters benchmark five-year corporate bond was lower at 7.59% on Wednesday, down from Tuesday's close of 7.69%. Rates in the call money market ended at 3.10-15%, down from 3.25-40%, as some of the surplus cash of banks found its way into the overnight market.
Analysts said the fall in government bond yields would not be very steep as government borrowings estimated at Rs 3.62 lakh crore in 2009-10 remain high. RBI will auction Rs 12,000 crore worth of government bonds on Friday, while buying back Rs 6,000 crore of bonds through open market operations on Thursday.
Posts
No comments:
Post a Comment