The yields on the 12-year paper, carrying a coupon of 8.13%, rose by one basis point to 8.05%, though the overnight call rate eased somewhat to 7%, about 11 basis points below Wednesdays close.
Speaking at a seminar in the city, State Bank of India chairman OP Bhatt conceded that there was a certain amount of discomfort about the current levels of liquidity in the banking system.
Chanda Kochhar, MD & CEO, ICICI Bank, observed that the days of excess liquidity were over. While there is no excess liquidity or too much of a surplus, it isnt really an impediment to growth. Money does need to be infused into the system and as the government starts spending, liquidity will start coming back, noted Kochhar.
However S Sridhar, CMD, Central Bank of India said liquidity would continue to be tight for some time. Any improvement in liquidity depends on when the government spending resumes and foreign inflows.Liquidity may ease by the end of 2010, Sridhar explained.
Interestingly, the overnight call rate remains around 75 basis points above the repo rate of 6.25%. M Narendra, CMD, Indian Overseas Bank said PSUs were in expansion mode as a result of which liquidity would flow back into the system. Call rates have come down and the money market should not remain tight for too long, he added.
On Thursday, three-month CDs were commanding yields of 7.97%, almost flat as compared with the levels seen on Wednesday. However, companies were paying more to borrow through Commercial Paper (CPs); yields on the three-month CPs moved up a notch to 8.45% from 8.36% on Wednesday. MD Mallya, CMD, Bank of Baroda expected liquidity should be reasonably good soon because of the steps taken by the RBI. In the next 15 days, we should be able to see much better liquidity situation, Mallya said. On Tuesday, RBI re-introduced the special second liquidity adjustment facility (SLAF) for five weeks till December 16, 2010.
While the RBI had indicated recently that the liquidity deficit would be brought down to around Rs 50,000 crore, dealers pointed out that this seems to be difficult because RBI would not want to reduce the CRR, given its policy stance .
Dealers said RBI was unlikely to intervene in forex markets to help the liquidity situation. The government too was unlikely to cut back on borrowings further this fiscal. Unless, therefore, RBI decided to lend money though Open Market Operations, it was unlikely that the liquidity situation would ease very soon.