Short-Term Interest Rates Ease in Mumbai Following Dollar Deposit Influx
· Business · Economic Times
Interest rates for short-term financial instruments like three-month certificates of deposit and 91-day Treasury bills have declined in Mumbai as large banks report a significant surge in dollar deposits. The influx of foreign currency non-resident bank deposits has boosted system liquidity, leading to a daily average liquidity of ₹3.41 lakh crore in August compared to ₹1.07 lakh crore in July. While short-term borrowing costs have eased, yields for paper maturing in one year or longer have hardened due to hawkish monetary policy signals from the central bank. The Reserve Bank of India is scheduled to conduct a record ₹6 lakh crore variable rate reverse repo auction on August 31 to manage the excess liquidity. Despite the current liquidity surplus, the weighted average call rate remains slightly below the repo rate of 5.25%.
Why it matters
The easing of short-term rates provides relief for smaller financial institutions, while the hardening of long-term yields reflects market expectations of potential interest rate hikes.
Read the original report — Economic Times
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