Signs of rates hardening visible now: Experts

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Short-term financing rates have gone up in the last two weeks which is seen as an indication of graduate start to hardening of rates, The Economic Times has reported.

Ajay Manglunia, managing director – debt capital market, JM Financial, is quoted in the report as saying that rising yields of treasury bills are a reflection of a gradual start to hardening in rates.

Treasury yields rose 14-19 basis points on Wednesday in the primary auction since the preceding two such bids conducted by the Reserve Bank of India (RBI).

Quoting from the data compiled by JM Financial Research, the report said the cut-off yield for the six-month gauge was at 3.83I in Wednesday’s primary auction compared with 3.70% on October 20 and 3.64% on October 13.

“We shall soon have the repo as the operating rate instead of the reverse repo. The central bank’s liquidity normalisation is underway aiding this move,” Manglunia is quoted as saying.

The repo is at 4%, while the reverse repo is 3.35%.

The rates are likely to increase considering factors such as rising global oil prices and local demand for money, The Economic Times has quoted  Yatin Singh, Head – Investment Banking at Emkay Global, as saying. Funding costs have begun to go up with expected near term liquidity normalisation, he added

The surplus liquidity in the banking system is estimated at Rs 6.94 lakh crore as on October 26, against Rs 7.71 lakh crore as on October 12, says the RBI data.

The RBI injected extra liquidity to deal with the Covid-10 situation. Governor Shaktikanta Das in his monetary policy statement on October 8 said that liquidity conditions would need to evolve in sync with the macroeconomic developments to preserve financial stability.

“This process has to be gradual, calibrated and non-disruptive while remaining supportive of the economic recovery,” he had said.