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The Reserve Bank of India (RBI) on Wednesday accepted majority bids for the treasury bills (T-Bills) auction at exorbitant rates. The auction was worth Rs 12,000 crore, which included 91-day T-bills worth Rs 7,000 crore and 364-day T-bills worth Rs 5,000 crore. The cut-off yields were 11.0031 per cent for 91-day T-bills and 10.4649 per cent for 363-day T-bills.
Bloomberg data shows the cut-off yield for Wednesday’s 91-day T-bills were at a high and the cut-off rates for 364-day T-bills were at an almost-13-year high. The last time the 364-day
T-bills had a cut-off was at 10.52 per cent in the auction held on October 4, 2000.
RBI had cancelled the T-bills auction last week for Rs 12,000 crore in which they were auctioning 182-day T-bills worth Rs 5,000 crore and 91-day T-bills worth Rs 7,000 crore. The cancelling was interpreted as the central bank not wanting interest rates to go up sharply. Wednesday’s action, however, indicates RBI wants short-term rates to stay high.
“The cut-offs for T-bills coming at such high rates indicate the government’s cost of borrowing is going up and it would ultimately hit the revenue deficit,” said S Srinivasaraghavan, executive vice-president and head of treasury, Dhanlaxmi Bank.
The auction was conducted through the multiple-price auction method, under which successful bidders are those who quote yields below the cut-off yield or at the cut-off yield and they get the T-bills at their respective rates of bidding. However, competitive bids accepted for the 91-day T-bills auction was of Rs 6,363.91 crore while competitive bids accepted for the 364-day T-bills auction was Rs 5,000 crore. Liquidity worth Rs 11,364 crore would be out of the system on Thursday as payment by successful bidders for Wednesday’s T-bills auction would be made.
RBI would auction cash management bills on Thurday. RBI would auction cash management bills of 56-days worth Rs 3,000 crore and 28-days worth Rs 3,000 crore.
According to Dwijendra Srivastava, head of fixed income, Sundaram Asset Management, the auction of cash management bills was announced because if T-bills auction had not been fully subscribed, at least the borrowing could be done through these cash management bills.
Since a majority portion of the T-bills auction got subscribed, auction of cash management bills would result in further liquidity squeeze. “As liquidity will tighten further, short-term rates will inch up from current levels,” said a treasury official of a public sector bank.
Due to liquidity tightening in the inter-bank money market, the weighted average one-day call rates stood at 9.14 per cent on Wednesday, compared with 7.17 per cent on Tuesday. In the secondary market, three-month Commercial Paper rates ended at 10.91 per cent, compared with the previous close of 9.71 per cent. While three-month Certificate of Deposits rate ended at 10.13 per cent, compared with the previous close of 9.39 per cent. According to issuer arrangeRs in the primary market, there were no issuances due to high rates and liquidity squeeze.
