An amount of Rs 6,000 crore will enter the money market on Saturday as the 50 basis point cut in the cash reserve ratio (CRR) comes into effect. This will bring down the CRR to 5 per cent from its current level of 5.5 per cent.
The Reserve Bank of India had in its credit policy on April 29 announced a 50 basis points cut in the CRR effective from June 15. However, later on, the central bank advanced the effective date by a fortnight to June 1.
The liquidity released through the CRR cut will take care of the auction to be conducted between June 3 and June 7 and keep the market afloat. According to the Reserve Bank of India (RBI) calendar of auctions, the central bank is expected to conduct an auction for a 10-year security for Rs 4,000 crore and an above-20-year security for another Rs 2,000 crore.
A dealer with a private bank said: "The liquidity condition in the market is very good at this moment and this can be observed in the good response to the RBI's open market sale. As the CRR cut will release the money equal to the amount of auction to be conducted next week, we expect the yields of the government paper to continue its southward journey ."
The good liquidity condition has been observed in the huge bids in the repo bid as well. The central bank is receiving bids well in excess of Rs 10,000 crore over the last couple of days.
The banking system has also not availed the major portion of the refinance facility from the apex bank. As on May 30, the banking system had taken only Rs 336 crore of refinance as against the limit close to Rs 7,000 crore.
