Yields on one-year certificate of deposit rates have touched a 24-month high of 10% as the Reserve Bank of India raised its key policy rates.
Moreover, there could be some impact on the rupee on account of the rising global crude and other commodity prices.
Banks are expected to take the cue from the RBI which signalled higher interest rates when it raised benchmark policy rate at last week's annual policy review.
Tight liquidity condition is back into the system after easing for a few days in early January.
Interest rates on the 3-month certificate of deposit, or CD rates, dropped to 8.73% from the previous close of 9.05%. One-year CD rates slipped to 9.48%.
An analysis of various Asian currencies that moved against the dollar showed that the rupee gained 3.4% against the dollar in 2010.
Overnight interest rate swaps have risen to two-year high, as the benchmark 5-year OIS touched 7.72%, the highest since October 2008, on fears of another round of rate hike by RBI.
Repo trade in corporate bonds has taken off with ICICI Securities Primary Dealership (I-Sec PD) striking the first and the sole deal in the day.
Tight liquidity, despite the Reserve Bank of India's emergency easing measures, is manifesting itself in higher borrowing costs for corporates.
Banks on Monday borrowed a whopping Rs 1,30,005 crore from the central bank through its liquidity adjustment facility, or the LAF window.
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