Will Market Move in Upward Direction?
Though the recent move is at best can be described as technical move, the role of liquidity can not be ignored. According to the latest data provided by the Reserve Bank of India, the outstanding amount in CDs went up to Rs 4,18,524 crore as on the fortnight ended February 25, with issuances of around Rs 40,000 crore worth of CDs in the same period. Banks were issuing three-month CDs at high rates to tide over the temporary asset-liability mismatch. The rates were as high as 10% and now it has come down to less than 6%. After April, these CDs will be either rolled over at a much lower rate or the holders will liquidate the CDs which will contract Bank’s balance sheet growth.
Banks must be realising that this is excess money which is not required looking to the credit growth prospect. Only if credit growth is good, then there may be some need to roll over. In case these are not rolled over, it will improve liquidity conditions after April thereby bringing down the short-term rates.
Then the market will witness again a period in which up move will be propelled by excess liquidity, as in the past.