Market players expect a pause in interest rate rises in the next three months following the Reserve Bank of India’s move to set a lower cut-off yield for 182-day treasury bills than the yield for 91 day papers.
The RBI received 67 bids worth Rs 10,516 crore on the 182-day bill. It set a cut-off yield of 8.16 per cent for the 182-day paper. For the 91-day bills, it received 101 bids worth Rs 22,585 crore. It kept a cut-off point for accepting bids at 8.18 per cent.
The treasury head of a large public sector bank said: “There is a perception in the market that rates may soften six months down the line. RBI may take a pause in its rate hike action in the next three to six months, though it is not the end of the rate hike cycle.”
The government has raised Rs 8,000 crore through the 91-day bills while Rs 3,000 crore was raised by selling the 182-day bills. Interestingly, at an auction a fortnight back, cut offs on both papers came at 8.23 per cent. At today’s auction, non-competitive bids that represent state governments or co-operative banks, were also accepted to the tune of Rs 1,900 crore for the 91-day bill.
The yields on the treasury bills moved up since the government announced a higher requirement than it was planned earlier. According to the revised calendar, the government is now borrowing Rs 11,000 crore every week, compared to Rs 7,000 crore planned earlier. As a result of increased borrowing, the cut-off yields on the 91-day bills have hardened by over 35 basis points within a month.
The RBI has raised policy rates by 275 basis points since March 2010, citing inflationary pressures. On June 16, RBI in its mid-quarter review raised the repo rate by 25 basis points. The rate hike of 50 basis points in May was the strongest so far. The first quarter review will be held on July 26.
