Key facts
- Indian CD rates are projected to fall by 75-100 basis points by July.
- Banks are expected to access cheaper overseas funding through loans and deposits.
- Average CD rates reached an over two-year high of 8.08% in late May.
- Market participants anticipate $30-50 billion in foreign inflows.
- This influx of funds is expected to lower borrowing costs across the financial system.
Rates on certificates of deposit (CD) and other short- to medium-term instruments in India are expected to decline as banks access cheaper overseas funding. Treasury heads anticipate CD rates could fall by 75-100 basis points by July, following a surge to multi-year highs. Average CD rates reached 8.08% in late May, the highest in over two years.
Market participants estimate inflows of $30-50 billion through Foreign Currency Non-Resident (FCNR) deposits and external commercial borrowings (ECB). Banks are likely to deploy these funds into domestic assets, potentially easing borrowing costs across the financial system.
This trend has already begun to impact corporate bonds, with rates for public sector unit (PSU) borrowers softening by over 30 basis points. For instance, NABARD recently raised ₹6,780 crore at 7.34% for three years, while NHPC raised ₹2,000 crore at 7.67% for a similar tenor the previous week.
In the sovereign bond market, yields on two- to five-year bonds have decreased by up to 30 basis points. However, some analysts suggest this rate softening might be temporary, citing rising inflation concerns, particularly after September.