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Informist, Friday, Feb. 7, 2025

By Siddhi Chauhan

MUMBAI – The short-term debt market saw no fresh issuances on Friday after the Reserve Bank of India did not announce any additional liquidity supportive measures or guidance at the conclusion of the Monetary Policy Committee's three-day meeting, hurting market sentiment, dealers said. While the MPC reduced the policy repo rate by 25 basis points to 6.25%, in line with expectations, Governor Sanjay Malhotra only said the central bank is committed to providing sufficient liquidity.

"Issuers had held onto their requirements as they had expected a rate cut along with proactive liquidity measures. Many people were also expecting a stance change," a dealer at a brokerage firm said. "Neither did they change the stance nor gave proper guidance on the liquidity front. Surely, they might continue with some of the existing measures, but the market has taken this negatively."

After banking system liquidity fell sharply into deficit in December, the RBI first cut the Cash Reserve Ratio by 50 bps to 4.00% and followed it up with a raft of measures in late January that in total aimed to add around INR 1.5 trillion of liquidity by the third week of February. The RBI has also been buying bonds in the secondary market. While the cumulative impact of these steps has helped cool down market rates, the central bank was widely seen providing more support as liquidity conditions are expected to tighten sharply in March.

In anticipation of further loosening of the stance of monetary policy from neutral and proactive liquidity measures as well as a repo rate cut, rates on three-month short-term debt instruments fell sharply this week. However, with the RBI only delivering a rate cut, rates on the three-month certificates of deposit were unchanged on Friday from Thursday's 7.35-7.39%. Rates on three-month commercial papers issued by manufacturing companies were also similar to Thursday's levels of 7.40-7.50%, as were those on three-month commercial papers issued by non-banking financial companies. The negative impact of the absence of additional liquidity measures was felt in the secondary market, where rates rose.

"While primary market rates have remained unchanged, rates in the secondary market have seen an increase," a dealer at a private bank said. "A part of the market is disappointed as we had expected better clarity from RBI, which we did not get. This along with some demand-supply dynamics has resulted in rates rising in the secondary market."

Market participants see short-term debt issuances picking up on Monday as issuers will need funds to roll over maturing papers. Next week, CDs worth INR 129.25 billion and CPs worth INR 322.45 billion will mature, as per data compiled by Informist Media.

--Primary market

* No funds were raised through CDs.

* No funds were raised through CPs.

--Secondary market

* HDFC Bank's CD maturing on Mar. 6 was traded thrice at a weighted average yield of 6.9994%.
* National Bank for Agriculture and Rural Development Ltd.'s CP maturing on Mar. 6 was traded four times at a weighted average yield of 7.0349%.

The following were the volumes, in INR billion, in the secondary market for short-term debt at 1700 IST, as detailed by the Clearing Corp. of India's F-TRAC platform:

End

Edited by Deepshikha Bhardwaj

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