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News›Markets›Forex›Forex News›Short-term rates ease as banks see surge in dollar deposits
REC Share PricePower Finance Corporation Share PriceIndian Renewable Energy Development Agency Share PricePTC India
Financial Services Share PriceThe Economic Times daily newspaper is available online now. Read Today's Paper Short-term
rates ease as banks see surge in dollar depositsSECTIONSShort-term rates ease as banks see surge in dollar depositsBy
Rozebud Gonsalves, ET BureauLast Updated: Aug 31, 2026, 06:42:00 AM ISTRate StoryFollow usShareFont
SizeAbcSmallAbcMediumAbcLargeSavePrintCommentSynopsisLarge banks secured significant dollar deposits, easing short-term
borrowing costs for smaller institutions. This influx of funds has boosted banking system liquidity considerably in
recent months. However, longer-term borrowing costs are hardening due to hawkish monetary policy signals. Markets
anticipate potential interest rate hikes in the near future. This outlook is influencing investor decisions on
longer-dated debt instruments.ANIMumbai: Interest rates at the extreme short end of the curve, such as three-month
certificates of deposit (CD) or 91-day Treasury bills, have eased after large banks garnered significant dollar deposits
from the diaspora, but a hawkish tone of the panel setting rates has helped harden yields for paper maturing in a year
and beyond.On Friday, the 3-month CD rate for top public sector banks fell to 6.40% from 6.80% a month ago, while the
1-year CD rate rose to 7.30% from 7.09% during the same time frame. Larger banks managed to edge out smaller rivals in
garnering more foreign currency non-resident - bank, or FCNR (B), deposits ahead of the advanced deadline of August
31.ET BureauAt Play Hawkish MPC signals keep longer-tenor yields firm while system liquidity rises to ₹3.4 L Crore"The
larger banks, which are the biggest beneficiaries of the FCNR(B) scheme, are absent from the CD market due to excess
liquidity," said V.R.C. Reddy, head of treasury, Karur Vysya Bank. "This low demand from bigger banks has eased up CD
rates, which has proven to be beneficial for mid to small banks."Banking system liquidity stood at a daily average of
₹3.41 lakh crore in August. In July, the daily average was at ₹1.07 lakh crore.To be sure, the central bank is due
to conduct a record VRRR (variable rate reverse repo) auction of ₹6 lakh crore on Aug 31 to help mop up excess system
liquidity.Live EventsThe Reserve Bank of India (RBI) has preferred the overnight rate to closely align with the repo
rate, now at 5.25%. Yet, due to excess liquidity the weighted average call rate (WACR) is trading below the repo rate.
In August so far, the WACR stood at 5.12%, down from 5.23% in July.As of August 21, the RBI's concessional swap facility
had attracted $72.85 billion in total foreign currency inflows, equivalent to nearly ₹7 lakh crore.Maturities
MatterBut the easing in rates is limited to maturities of less than one year, where surplus liquidity has pulled down
borrowing costs. Beyond one year, yields have inched higher after the minutes of the August monetary policy committee
(MPC) review were published, shortening the odds on an imminent increase in rates - perhaps as early as
October.State-owned REC rejected bids for its ₹3,000 crore 2-year bond issue this week, while PFC pulled its planned
₹2,500 crore 3-year issue after bids came in at higher yields.Read more: Global Market Today: Asian stocks drop on
hawkish Warsh tone, oil gainsThe three-year bond would have cost around 7.50%, while PFC was looking to raise funds
around 7.25%-7.30%. "The softness seen in very short-term yields has not translated to segments over one year because of
the hawkish MPC minutes. Markets are expecting a rate hike sooner rather than later and no one wants to lock in duration
in such a scenario," said Alok Singh, head of treasury, CSB Bank.RBI governor Sanjay Malhotra during the August MPC
review said that he expects liquidity surplus to be temporary and manageable, with excess funds likely to peak around
September before being absorbed through normal currency demand, reserve requirements and maturing forex forwards.Add as
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