Liquidity is likely to improve considerably

Debt Market View _ May 2014

 

May was eventful, with Modi-led BJP swamping the general elections and forming the central government by gaining majority and thus, boosting market sentiments.

 

WPI for Apr-14 stood at 5.20% compared with 5.70% in Mar-14.

 

RBI at its bi-monthly policy on June 03, 2014 announced the following:

 

  • The policy repo rate under the liquidity adjustment facility (LAF) was unchanged at 8.0%

 

  • Cash reserve ratio (CRR) of scheduled banks was unchanged at 4.0% of net demand and time liabilities (NDTL)

 

  • Statutory liquidity ratio (SLR) of scheduled commercial banks reduced by 50 basis points from 23.0% to 22.5% of their NDTL effective from the fortnight beginning June 14, 2014

 

  • Liquidity provided under the export credit refinance (ECR) facility reduced from 50% of eligible export credit outstanding to 32% with immediate effect.

 

  • Introduced a special term repo facility of 0.25% of NDTL to compensate fully for the reduction in access to liquidity under the ECR

 

  • To continue to provide liquidity under 7-day and 14-day term repos of up to 0.75% of NDTL of the banking system

 

  • Consequently, the reverse repo rate under the LAF will remain unchanged at 7.0%, and the marginal standing facility (MSF) rate and the bank rate at 9.0%

 

As on May 30 G-Sec Corp bond

3yr

8.27%

9.14%

5yr

8.54%

9.28%

10yr

8.64%

9.31%

15yr

8.78%

9.36%

 

 

 

 

 

 

 

 

 

As on May 30 T-Bill CD

1m

8.35%

8.45%

3m

8.51%

8.55%

6m

8.59%

8.88%

1yr

8.65%

8.97%

 

We believe liquidity might improve considerably this month. First two weeks might see tad tight liquidity after which consistent inflows through redemption and interest payments will support overnight rates and short end of the money market.

 

Written By:

Sachin Kathar

Retail Research Desk

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.

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