RBI’s recent measures aimed at attracting foreign currency inflows have softened money market rates meaningfully

There is no let up in demand for short-term funds of up to one year tenor from banks and India Inc despite the economy facing external headwinds due to the West Asia conflict as interest rates have softened at the shorter-end.

Fund raising via Certificate of Deposits (CDs) by Banks and via Commercial Papers (CPs) by corporates, primary dealers and all-India financial institutions in the current financial year so far (data up to June 8, 2026) stands comparison with year ago period (full quarter) amid banking system’s credit growth outpacing deposit growth.

In the current financial year (FY27) so far (up to June 8, 2026), banks’ cumulatively mopped up ₹2,18,290 crore via 190 CD issuances against ₹2,55,025 crore raised by 249 issuances in the first three months (Apri-May-June) of FY26, per data sourced from primary capital market information service provider Prime Database.

Similarly, in the current financial year (FY27) so far (up to June 8, 2026), India Inc cumulatively mopped up ₹3,60,219 crore via 1,712 CP issuances against ₹4,50,746 crore raised by 2,166 issuances in the first three months of FY26.

Balanced funding

As per latest RBI data, as of May 31, 2026, incremental credit growth of all scheduled banks at 17.44 per cent was 530 basis points higher than their incremental deposit growth of 12.14 per cent.

Venkatakrishnan Srinivasan, Founder and Managing Partner, Rockfort Fincap LLP, observed that the current softness in money market rates makes short-term funding attractive. So, borrowing via CDs and CPs are expected to be at an all time this fiscal.

However, he cautioned that excessive reliance on CPs and CDs and repeated rollovers could create asset-liability mismatches and refinancing risks, particularly for borrowers funding longer-tenor assets. A balanced funding strategy remains important.

Venkatakrishnan underscored that the movement in CP and CD rates during FY27 has been quite interesting, with the rates moving up as markets reacted to escalating geopolitical tensions in West Asia, rising crude oil prices and concerns regarding inflation and the interest rate outlook.

Moving down

However, following the RBI’s recent measures aimed at attracting foreign currency inflows and supporting the rupee, money market rates have softened meaningfully.

For example, between May 26 and June 10, 2026, 2-3 month Bank CD rates softened to around 6.85-6.90 per cent from 7.48-7.52 per cent earlier, while 12-month Bank CD rates declined to about 7.55 per cent from 7.98 per cent.

Similarly, 2-3 month “A1+” rated PSU and manufacturing company CP rates eased to around 6.92-6.93 per cent from 7.50-7.54 per cent earlier, and Housing Finance Company CP rates softened to around 6.95 per cent from 7.60-7.64 per cent.

Even NBFC CP rates witnessed a decline, with 2-3 month rates moving down to about 7.35-7.50 per cent from about 7.95-8.15 per cent.

Geopolitical pressures

Venkatakrishnan opined that the decline in rates reflects improved market confidence and expectations of better funding conditions arising from FCNR(B) deposit, External Commercial Borrowing and Overseas Foreign Currency Borrowing-related inflows.

However, many issuers remain uncertain about the medium-term interest rate outlook given the evolving geopolitical situation, crude oil volatility and potential inflationary pressures.

Consequently, several borrowers may continue to prefer short-term funding through CPs and CDs rather than locking into longer-term borrowings.

Published on June 11, 2026