Dealers said till the repo rate is cut from the current level of 8 per cent, the present levels will be sustained and there might even be an upward pressure on the rates if the rupee turns volatile.

In the secondary market, there is a net selling of CPs, but there are few takers except for a few mutual funds. The CPs being traded at 10.90 per cent include those issued by Reliance Industries (to mature on March 15, 1999), Larsen & Toubro (maturing on March 29, 1999). CPs issued by Grasim and United Phosporous, maturing in February 15 next year, are being traded at 10.60 per cent.

Dealers said the sellers include foreign and a few private banks. The main reason for the sellingpressure is these banks want to remain liquid. "Public sector banks like the State Bank of India rarely sell in the secondary market and hold the instrument till maturity," a dealer with a brokerage house said.

Last week, as the forex market turned volatile, T-bill yields tightened in the secondary market and there was selling pressure on the P1+ rated CP. "As a result, yields on CPs hardened by 25 basis points last week," an analyst with a leading brokerage said.

"For three-month maturity CP, spreads over T-bills which are pegged at 110-120 basis points now will widen further if the selling pressure from banks continue," a dealer with a primary dealership said.