The Reserve Bank of India (RBI) on March 06, 2024, issued the Working Paper Drivers of Commercial Paper Rate Spread - An Empirical Assessment
The following has been stated namely: -
• It states the major characteristics of the Indian Commercial Paper (CP) market in comparison with the CP markets across other major economies.
• The paper empirically investigates determinants of the CP rate spread over the T-Bill rate using daily data.
• It states that the Surplus liquidity is associated with lower CP spread and vice versa. Market volatility measure (VIX) increases the spread, indicating a shift in investors’ preference towards safer assets during periods of increased risk.
• The Market expectation of interest rates (OIS 1-month) increases the spread, indicating a rise in CP rates with the market expectation of interest rates going up.
• An increase in the share of mutual funds, the dominant investors in the CP issuances, dampens the CP spread.
• The CP issuers are broadly divided into corporates and NBFCs; the results suggest that spreads trend to increase in tandem with an increase in CP issuances by NBFCs.
[Press Release: 2023-2024/2010]
