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Certificates of Deposits yields ease as liquidity set to rise on Rs 2000 note withdrawal

The yields on CDs have declined by around 15-20 basis points as banks have already started exchanging and depositing Rs 2000 notes.

MUMBAI: The withdrawal Rs 2,000 notes have eased the yield on Certificates of Deposits (CD) on expectations of rise in the liquidity in the banking system. The yields on CDs have declined by around 15-20 basis points as banks have already started exchanging and depositing Rs 2000 notes. Infusion of liquidity by the Reserve Bank of India via a repo auction has also helped in lowering the yields.

“RBI declared a dividend of Rs 87,000 crore compared to the budgeted figure of Rs 48,000 crore.  There was some disappointment in the market as markets were expecting a figure north of Rs 1 lakh crore,” said Puneet Pal, head-fixed income, PGIM India Mutual Fund. “The interbank liquidity eased with maturity of government securities and we expect banking liquidity to stay easy till middle of June as the RBI dividend will also come into the system by way of government spending,” he added.

RBI injected Rs 46,790 crore through a 14-day repo auction on May 19. Experts believe the withdrawal of Rs 2,000 notes will bring back Rs 3.6 lakh crore to the banking system. The yield on CDs maturing in three months has now eased to around 6.80-6.95% from 7.00-7.20%  a week earlier.

 

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