Public-sector bank CD rates rise above 8 per cent
Tight liquidity and higher treasury-bill yields have driven up one-year certificate of deposit rates from 6.6 per cent in August, according to The Economic Times.
One-year certificate of deposit (CD) rates at public-sector banks have climbed above 8 per cent recently, according to The Economic Times. This increase comes amid a liquidity squeeze, higher treasury-bill yields, and expectations that policy rates may rise to control inflation.
Banking system liquidity saw a daily average surplus of ₹2.3 lakh crore in October, down from a daily average of ₹7.7 lakh crore in September. This reduction in available funds has increased the demand for liquidity and led to more CD issuances.
Banks issued ₹19,505 crore in CDs during the fortnight ending August 31. These issuances rose to ₹74,607 crore by September 30 and reached ₹45,781 crore by October 15.
Rajeev Pawar, head of treasury at Ujjivan Small Finance Bank, said CD rates are a function of the risk-free rate, which is the equivalent tenor T-bill. He noted that T-bill rates rose 20-25 bps at the last auction and that demand is increasing due to the liquidity squeeze.
Treasury-bill yields, which apply to bonds with a tenure of less than one year, have reached their highest level in nearly two years. RBI data showed the 364-day T-bill yield was 6.69 per cent, which is 20 basis points higher than its previous auction.
Gopal Tripathi, head of treasury at Jana Small Finance Bank, said the increase in short-term rates is linked to both the liquidity deficit and the pricing in of rate hikes. He stated that markets are preparing for a rate hike and that CD rates may not have reached their peak due to volatility.