Major part of cash management bills auction subscribed at high rates

After the treasury-bills (T-bills) auction held yesterday where most of it got subscribed at high rates, today the Reserve Bank of India (RBI) conducted the auction of cash management bills. Major part of it got subscribed, but again at high cut off yields. This signals that short-term rates will continue to trade high in the near term.

RBI auctioned cash management bills for a notified amount of Rs 6,000 crore today which included 56-days cash management bills worth Rs 3,000 crore and 28-days cash management bills worth Rs 3,000 crore. The cut-off rates were 11.1753 per cent for 28-days cash management bills and 11.2045 per cent for 56-days cash management bills. However, amount worth Rs 2,195 crore got subscribed for the 28-days cash management bills and the remaining bids were rejected by the central bank.

'The intention of RBI is to raise short-term rates and ensure that long-term interest rates are not impacted. What is required now is a US type shift which will be to issue short-dated papers and suck out short-term liquidity. On the other hand buyback long-dated papers so that long-term interest rates do not rise too much,' said Mohan Shenoi, president - group treasury and global markets, Kotak Mahindra Bank. Shenoi expects more cash management bills auction to suck out liquidity from the system.

Today banks borrowed Rs 21,028 crore from RBI's Liquidity Adjustment Facility (LAF) compared with Rs 28,835 crore on Wednesday.

Meanwhile in the inter-bank money market the weighted average one-day call money rates stood at 8.32 per cent today compared with 9.14 per cent on Wednesday. The rates eased after an initial rise on Wednesday following further liquidity tightening measures announced by the central bank late evening on Tuesday.

In the t-bills auction held on Wednesday the cut-off yield for 91-days t-bills were at all-time high and the cut off yield for 364-days t-bills were at almost 13 year high. The last time the 364-days t-bills had a cut-off at 10.52 per cent in the auction held on October 4, 2000.