Moreover, RBI allowed banks to access the second Liquidity Adjustment Facility (LAF) window till January 28, 2011 rather than December 16, 2010, announced earlier. Collectively, 2% of the net demand and time liabilities would amount to around Rs 95,000 crore. That's close to the average amount of Rs 1 lakh crore, that banks have been borrowing from the central bank, over the past fortnight, with the amount being as high as Rs 1.45 lakh crore last Tuesday.
Hemant Mishr, head, global markets, Standard Chartered Bank, said, The government balances with RBI have been rising. Unless, the government lowers its borrowings, we believe money will be in short supply.
RBI observed that even though a liquidity deficit is consistent with anti-inflation stance, excessive deficit in liquidity can be disruptive both, to financial markets and to credit growth in the banking system. To ensure that economic activity is not disrupted by liquidity constraints, the liquidity deficit needs to be contained within a reasonable limit. The government is scheduled to borrow Rs 86,000 crore by way of auctions between now and mid-February, 2011, after having mopped up Rs 3.61 lakh crore, so far in 2010-11.
Dealers, however, believe that bond auctions, for three dated securities worth Rs 11,000 crore, scheduled on December 3, 2010, should find enough takers.
Meanwhile, money continued to be tight on Monday with companies paying more to access funds. The yield on the three-month CP has moved up to 9.09% on Monday from 8.4% at the end of October, 2010 with liquidity continuing to be in short supply Liquidity with banks seems to have been more comfortable with the inter-bank call rate coming off to 6.66% from 6.80% on Friday. Three-month CDs (certificates of deposits) were commanding yields of 8.40% on Monday not much higher than they were last weekend. Nevertheless, they continued to borrow a fairly large sum of Rs 79,195 crore from repo windows. The yield on the ten-year benchmark paper closed at 8.01%, virtually at the same level as on Friday.
Joydeep Sen, SVP, fixed income (advisory) at BNPP Wealth Management, said, Money market yields have been moving up gradually since the past six months owing to a shortage in the liquidity. By mid-December, we would be facing advance tax outflows and some more pressure on systemic liquidity, though temporary.