MUMBAI, DEC 5: In a clear signal that interest rates in the short end of the market are set to firm up, the Reserve Bank of India hiked the cut-off yield (interest rate) of the 14-day treasury bills by a whopping 210 basis points on Friday to 7.06 per cent. The 91-day treasury bills yield was jacked up by 99 basis points to 7.22 per cent.Taking a cue, banks hiked the interest rates on short-term instruments like commercial papers straightaway between one and two percentage points today. Bank of Baroda quoted 90-day CPs at even 11 per cent, 250 basis points about the last week's rate.In the term money market, some of the public sector banks are quoting 10 per cent for 30-day money. A few foreign banks and new private sector banks are scouting for funds in the term money market to cover 10 per cent CRR on their net time and demand liability.``We are quoting 10 per cent for one-month money in the term money market,'' chairman of a Mumbia-based nationalised bank said. Banks have also jacked up the interest rate on 90 day certificate of deposits (CDs) by one percentage point.With the Reserve Bank sucking out liquidity from the short term market by hiking interest rates, speculators who were arbitraging between the money and the forex market seemed to be cooling their heels. The rupee continued its upward climb today and it gained by another 5 paise to close at 38.85 With this, the Indian unit gained over one per cent. The six-month forwards (annualised) remained range bound to close at 7.5 per cent. RBI governor Bimal Jalan early this week said interest rates at the shorter end of the market must go up to correct the yield curve. On Wednesday, the central bank kept the cut-off yield of 364-day treasury bills unchanged at eight per cent.In line with Jalan's announcement, the Reserve Bank on Tuesday hiked the fixed rate repo to 5 per cent and subsequently to 6.5 per cent paving the path for a hike in the yield of the 14-day treasury bills.At the 14-day treasury-bills auction held today, the Reserve Bank received two competitive bids for an amount of Rs 55 crore and one non-competitive bid for Rs 200 crore. It allotted the non-competitive bid an amount of Rs 200 crore and competitive bids Rs 25 crore while Rs 20 crore devolved on the primary dealers. In the secondary market, repo deals with a 14 day maturity were struck at 8.1 per cent.At the 91-day treasury bills auction, out of a notified amount of Rs 300 crore the Reserve Bank received six competitive bids for an amount of Rs 41.25 crore and two non-competitive bids for Rs 250 crore. While four competitive bidders were allotted Rs 6.25 crore, both the non-competitive bidders were allotted Rs 250 crore. An amount of Rs 43.75 devolved on the primary dealers.At the three-day repo held today, the RBI received 10 bids for an amount of Rs 1,231 core at 6.50 per cent. The apex bank announced another three day repo on December 6.
