In a clear sign of acquiescence to rising interest rates, the Reserve Bank of India has hiked the cut off yield at the auction of three papers yesterday to raise Rs 5,500 crore.
The RBI set the cut-off yield of the three year, five year and 12 year papers at 11.55 per cent, 11.75 per cent and 12.25 per cent respectively. The cut-off yield on the five year paper is significantly higher than the 11.10 per cent fixed at the auction of same tenure paper on April 6. As recently as June 19 the RBI had offered 11.75 per cent on six year paper at the on-tap issue of government stock.
Though the three year paper was expected to sail through, there was a devolvement on the RBI to the tune of Rs 812 crore and in case of the five year paper, Rs 960.31 crore. There was no devolvement in the 12 year paper. Significantly, the RBI had not offered primary dealers and satellite dealers the option of underwriting at this auction.
The RBI recieved 112 bids for an amount of Rs 1965 crore at the auction of three year paper, against a notified amount of Rs 2500 crore. At the cut off yield of 11.55 per cent, the RBI accepted 102 bids for Rs 1688 crore. The weighted average yield was 11.50 per cent.
Against a notified amount of Rs 2000 crore for the five year paper, the RBI received 63 bids for Rs 1193.69 crore. At the cut off yield, it accepted 48 bids for Rs 1039.69 crore. The remaining amount devolved on the RBI and the weighted average yield was 11.73 per cent.
The RBI received 49 bids for Rs 1414.00 crore at the auction of 12 year paper, against a notified amount of Rs 1000 crore. At the cut yield, the RBI accepted 16 bids for a total of Rs 1000 crore, of which 10 were partially accepted. The weighted average yield was 12.21 per cent.
With this, the government has completed over 50 per cent of its gross borrowing programme, by raising Rs 40,530.31 crore through issue of dated securities. Support from RBI stands at Rs 15,771.81 crore, more than double the monetised deficit target of Rs 7000 crore indicated in the interim budget. The government's recourse to ways and means advances has also breached the 75 per cent trigger limit and stood at Rs 10,986 crore as on June 12.
There are signs of liquidity drying up, as the surplus amount parked in repos amounting to Rs 4,012 crore that comes in today will be more than offset by the outgo on account of payment by successful bidders at the auction. Inflows during this month to the order of Rs 4,693.06 crore, on account of coupon flows on various securities and maturity of 364-day treasury bills. Since the government has still around 50 per cent of its borrowing to go through, the market now expects a cut in cash reserve ratio.
The RBI had taken a huge devolvement of Rs 3999.50 crore at the last auction of 9 year paper as it fixed the cut off yeild at 11.90 per cent below market expectation. While PDs and SDs had been offered 60 per cent, or Rs 2400 crore for underwriting, all their bids had been rejected as they had asked for high commissions. Since then, however, the RBI has signalled higher interest rates by offering higher yields at the on-tap issue and revising its price list for open market operations downwards.
At the auction of 364 day t-bills yesterday, the entire notified amount of Rs 100 crore devolved on the RBI. It received one bid for five crore and at the implicit cut off yield of 8 per cent, the bid was not accepted.
