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Fixed Income

MSF Borrowing Still At 1.4 Trillion

MSF borrowing under the Marginal Standing Facility was 1.426 trillion (1.426 lakh crore) yesterday. This is close to the limit of 1.6 trillion that is the maximum (I believe) the system provides.

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And yet, longer term bond yields remain benign at 8.35% today and declining. Even CBLO rates aren’t going up. While the total borrowing is so high, aren’t some banks, at least, hitting their limits?

I believe there are a lot of expectations built up on the RBI policy. That he’ll cut rates, or that if he sees the liquidity crisis, he will remove some of the limits (repo limit of 0.5% of NDTL, or MSF interest rate width). This could happen – since the currency is back to 63 levels, there will be at least one element of easing on this front.

But it could come with a rate hike, given inflation’s showing ugly head and all that. It’s the complex combination of whether the better will offset the worse that will confuse markets. Right now, they’re on the side of the “better”.

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