The liquidity shortage eased somewhat as banks borrowed a smaller quantum of Rs 1.03 lakh crore from Reserve Bank of India?s repo windows on Monday.
Banks borrowed Rs 1.14 lakh crore on Friday, the last day of the year 2010. The yield on the ten-year benchmark paper marginally rose by four basis points to 7.9% at close on Monday though2020.
The overnight one-day call rate stood at 6.73%, slightly lower than 6.82% seen on Friday. The yields on three-month Certificates of Deposits (CDs) stood at 9.10%, marginally higher than 9.05% on Friday while yields on Commercial Paper (CPs) stayed higher at 9.44%, as against 9.31% recorded on Friday.
?Liquidity will slowly start improving as the the government of India is roughly maintaining Rs 1 lakh crore in its account balance with the RBI, after the collection of advance tax payments. Government of India is expected to spend it gradually in a month’s time.
In the last quarter of 2010-11, all the planned expenditure has to be completed by the government,? said a treasury head from IDBI Gilts.
In its mid-quarter monetary policy, RBI said, it would buy back bonds worth Rs 48,000 crore through OMO in a month?s time. RBI has said that it would buy-back bonds worth Rs 12,000 crore on Wednesday last week. Meanwhile, the cost of one-year interest-rate swaps rose by one basis point to 7.09%. It touched 7.11% early last week, the highest level since October 2008.
Moses Harding, head, Global Markets Group at IndusInd Bank, said, ?The inflows through government spend and bonds buy-back is too little for the enormous market appetite for funds.