Cut in repo rate prompts central bank to put off the sale of papers.
Close on the heels of the Reserve Bank of India’s (RBI) 100-basis point cut in the repo rate, the government also cancelled its Rs 10,000-crore bond auction slated for on Monday.
This is the second time in three weeks that the government has put off the auction for the new six-year paper (Rs 6,000 crore) and reissue of bonds maturing in 2032 (Rs 4,000 crore). Earlier, the government had put off the auction scheduled for October 10 for same bonds due to tight liquidity conditions.
It decided to cancel the auction on Monday after receiving bids from market participants.
“In order to enable the market participants to make fresh bids, the government will offer the same securities for the same amounts in auctions on a date to be announced later,” RBI said.
“The decision on the reduced repo rate and cancellation of auction is linked. After deciding to bring down the cost of borrowings for banks, it did not make sense for the government to borrow at a higher rate. It will be possible to raise funds at a lower cost in the coming days,” a said senior trader of a public sector bank-owned bond house.
The price of the government bond maturing in 2021 rose by more than a rupee after RBI made the announcement to cancel the bond auction.