The move will remove a little over Rs 1 lakh crore from the banking system, pushing up short-term rates of money market instruments like treasury bills, commercial papers, call money, etc.
Indian companies raised Rs 1.51 lakh crore in June, which is up 27.4 percent from Rs 1.18 lakh crore in May.
During an interaction with reporters, RBI Governor Shaktikanta Das said he expects most of the to-be-discontinued notes to return to the banking system by September 30.
Money-market dealers expect liquidity in the banking system to remain under stress for the rest of this financial year
CPs are unsecured, short-term debt instruments issued by corporates to finance short-term liabilities. CDs are issued by banks to meet their short-term funding requirements
Excess liquidity, fears of delayed recovery and rate cut hopes have sunk short-term rates.
Keki Mistry of HDFC feels that the RBI's steps on Monday will bring down the short term rates by 50 bps. However, with the possibility of higher inflation going forward, repo rates may be hiked, he says.
HDFC Bank sees a 50 basis points fall in the short term after RBI cuts the marginal standing facility (MSF) by 50 bps on Monday
Axis Bank feels that the central bank's decision to slash the marginal standing facility (MSF) by 50 basis points (bps) was as indicated by it. It also sees short term rates lowering going forward.
Post the RBI policy announcement, both the Sensex and the Nifty plummeted, but Nirmal Jain of IIFL feels the reaction is more kneejerk than anything to do with the repo rate hike by 25 bps. Going forward, he feels the market will have a positive bias with more foreign money coming into Indian equities on global cues.
Reliance Industries, L&T Finance Holdings and Tata Capital, part of the Tata conglomerate, have bought back around a combined Rs 2175 crore of debt since late July, dealers said.
The investment climate here is weak, with short-term rates going up, working capital cycle getting extended and deterioration in asset quality etc. it is not a three month, six month kind of a solution. The collateral damage is going to get far extended into the next year as well. The path to recovery is going to take a much longer while