After witnessing very tight liquidity conditions in recent days, the market is getting ready for government borrowings estimated at over Rs 21,000 crore this week. It may test the depth of liquidity ahead of the Reserve Bank of India’s (RBI’s) half-yearly policy review on Friday.
On reviewing the liquidity condition, RBI had cancelled the auction of two securities scheduled on October 10 to raise Rs 10,000 crore for the government. The same auction will now be conducted tomorrow. RBI will sell Rs 6,000 crore of six-year gilts and Rs 4,000 crore of 24-year paper.
In addition, there are two treasury-bill auctions to mop up Rs 7,000 crore and five state governments propose to raise over Rs 4,000 crore. While the Maharashtra government intends to raise Rs 2,000 crore, Andhra Pradesh (Rs 1,000 crore), West Bengal (Rs 600 crore), Punjab (Rs 500 crore) and Himachal Pradesh (Rs 200 crore) have also lined up bond auctions.
A slew of measures by the government and RBI, including a 250 basis point cut in the Cash Reserve Ratio (CRR), have brought in over Rs 100,000 crore into the system. It brought relief to the market last week as seen in the cooling of yields and call rates, which had touched 23-24 per cent, dealers said.
Availability of funds with banks led to a fall in the call money rate to a seven-week low of 6 per cent on October 17, which in turn, boosted the demand for government bonds.
A senior executive of State Bank of India said, “Many bonds and treasury bills are coming for redemption, releasing more funds into the market. Even if tight conditions prevails, it will be okay (borrowings will sail through).”
The auction for the six-year paper is likely to see bids in the yield range of 7.85 per cent to 8 per cent. The yield on the 10-year benchmark paper is seen in the range of 7.60 per cent to 7.70 per cent next week, he said.
The borrowing programme is lined up just a week after the market went through extreme resource crunch. While the government and RBI have taken steps to improve liquidity, the memories of tight market conditions are fresh and, hence, some apprehension lingers, said the head of a mid-size public sector bank.