With the cash reserve ratio hikes kicking in, the Reserve Bank of India is unlikely to sell government bonds under the Market Stabilisation Scheme to drain liquidity this month, bankers and analysts said. | |
| At worst, there could only be one tender of about Rs 20 billion, they said. Besides the CRR outflow, there are also regular auctions, said Piyush Wadhwa, vice-president, ICICI Securities. |
| |
| Banks' CRR will rise 25 basis points to 6.25 per cent on Saturday and to 6.50 per cent on April 28, which will drain total of Rs 155 billion. |
| |
| Beginning March, the RBI has been conducting at least one gilt tender under MSS every week. Thus, it came as a surprise last week when the central bank did not announce any for this week. |
| |
| The RBI has been conducting these auctions to sterilise liquidity, injected by its purchases in the foreign exchange market of late. |
| |
| Since March 2, the central bank has issued Rs 220 billion of gilts under the MSS. Funds raised by the government under MSS are kept aside and not used for funding its expenditure. |
| |
| This week, as part of its regular market borrowing, the government will auction Rs 100 billion of gilts on Thursday. |
| |
| Through April, it will raise Rs 160 billion through gilt issues. |
| |
| Most dealers don't expect gilt auctions under the MSS this month, but a few said that Rs 20 billion of bonds could be offered. |
| |
| "State-run banks have been buying dollars possibly on the RBI's behalf and there is a possibility that with increased forex intervention, there might be another MSS auction next week," said Vikram Kadam, treasurer with BNP Paribas. |
| |
| However, most dealers expect the MSS-bond auctions to resume in May. |
| |
| RBI has been trying to keep liquidity tight as part of its efforts to rein in inflation which was at 6.39 per cent for week to Mar 24""substantially higher from RBI's FY07 target of 5.0-5.5 per cent. |
| |
|
| |
