Rate rise hope keeps MFs off market

09-Feb-2010

Mutual funds refrained from purchasing fresh papers on expectation the rates would rise by the end of this month once the two-staged Cash Reserve Ratio (CRR) takes effect, dealers said. The Reserve Bank of India (RBI) had, in its third-quarter Annual Policy Statement for 2009-10 (April-March) Friday, increased banks' CRR by 75 basis points (bps).

The first stage of 50 bps CRR hike will become effective February 13 and 25 bps on February 27, draining Rs 36,000 crore out of the system. "Mutual funds were preferring to trade in the secondary market as the rates had risen during early trades today," said a dealer with a mutual fund. The bid and offer spread was wide today as mutual funds were quoting higher levels, while banks were not keen on raising funds at higher rates, dealers said.

Banks too were not issuing certificates of deposit (CDs) today as there was sufficient liquidity as can be evidenced from the bids the RBI received for its daily reverse repo window. The central bank today received reverse repo bids worth Rs 74,185 crore as against Rs 88,590 crore on Friday. Today, three-month CDs were quoted at 4.55-4.65 per cent, unchanged from Friday and three-month commercial papers (CPs) at 4.8-5.0 per cent, also unchanged from Friday.

Source : www.insuremagic.com