Today the Reserve Bank of India placed on its website a Working Paper titled, “Drivers of Commercial Paper Rate Spread – An Empirical Assessment” under the Reserve Bank of India Working Paper Series^[1]. The paper is co-authored by Priyanka Priyadarshini, Anshul, Srijashree Sardar, Dipak R. Chaudhari and Sangeeta Das.

The paper analyses 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.

The findings indicate that:

1. 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.
2. 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.
3. 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.

(Yogesh Dayal)       
Chief General Manager

Press Release: 2023-2024/2010