Yields on corporate bonds appear trending down after the Reserve Bank of India (RBI) announced a host of measures to improve liquidity in the system and trimmed the repo rate by 25 basis points at its first bi-monthly policy for 2016-17.
Power Finance Corporation (PFC) has received bids at 7.85% for three-year paper, according to bond arrangers. That is way lower than 8.12% at which PFC had issued bonds in January of a slightly longer tenure.
Rates appear to be coming down for long-tenure bonds as well. Exim Bank has issued a 10-year paper at 8.02% according to market participants aware of the development. The bank had issued paper of a similar tenure at 8.18% in December.
The central bank has been lowering the repo rate gradually since January 2015, having cut it by 150 basis points since then to 6.50% from 8%.
In an equally-important move, it has been conducting open market operations to infuse liquidity into the system and facilitate transmission.
With banks moving to the Marginal Cost of Funds Lending Rate (MCLR), the minimum lending rate for a few lenders has come down. On Tuesday, Axis Bank trimmed its base rate by 5 basis points.
In its April 5 monetary policy statement, the Reserve Bank of India (RBI) had said it would progressively lower the average ex-ante liquidity deficit in the system to a position closer to neutrality.
The central bank has been keeping the liquidity shortfall equivalent to 1% of banks’ net demand and time liabilities (NDTL). A move towards a position closer to neutrality will lead to release of about Rs 90,000 crore into the system over a period of time.
“The period over which we move depends to some extent on market conditions, depends on the flows that come in. Remember, net foreign assets are part of the liquidity move. So, we have to work it out. We have to see how this move takes place. An addition of 1% deficit to about neutral means an additional removal of deficit by about Rs 80,000-90,000 crore,” Rajan had indicated.
