The Central government has privately placed Rs 5,000 crore of 10.25 per cent 2021 bond with the Reserve Bank of India (RBI).
The private placement has raised the hope that there may not be any issue of government papers in the near future.
The bonds were re-issued at a price of Rs 100 each. With the private placement the government has completed more than 35 per cent of the gross government borrowing programme.
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A primary dealer said, "it seems that the government has adopted a different approach for funding its expenditure which will not affect the liquidity in the system."
The liquidity in the system has been good since the last week as the redemption and coupon payment of government security hit the system.
The liquidity comfort was evident as no bank or primary dealer have recoursed to the reverse repo facility for their short-term funding.
Players are rather showing interest in putting their money in the repo auction despite the reduction in repo rate by 25 basis points to 6.50 per cent.
Dealers, however, were expecting the central bank to come out with a fresh auction to mop up the extra liquidity in the system as the ways and means advances figure continued remain close to the limit of Rs 10,000 crore. The apex bank, however, has adopted a different approach this time.
Government security prices rallied by 15-20 paise at the long and the medium end of the market on the back of the private placement news.
A dealer with a private sector bank said, "it now seems that the liquidity condition will remain easy for some time which boosted the buying interest in the market."