T-bills demand softer than previous week on caution ahead of MPC outcome

The demand for Treasury bills at the weekly auction was softer than the previous week due to caution ahead of the three-day Monetary Policy Committee (MPC) meeting outcome on Thursday.

The Reserve Bank of India (RBI) set the cut-off yield on the 91-day, 182-day, and 364-day Treasury bills at 6.75 per cent, 6.91 per cent, and 6.96 per cent respectively. The cut-off yield on the 184-day Treasury bill was set four basis points higher, whereas the 91-day and 364-day cut-off yield was set three basis points higher than the previous week.

Meanwhile, government bond yields inched up slightly, tracking a rise in US Treasury yields. However, traders refrained from placing large bets ahead of the policy outcome, which kept the volume dull. The domestic rate-setting panel is widely expected to keep the repo rate unchanged at 6.50 per cent; however, the committee is anticipated to maintain the “withdrawal of accommodation” stance. The commentary by the Reserve Bank of India governor Shaktikanta Das will be in focus.

“The volume was dull ahead of the MPC, and the market was tracking only US yields,” a dealer at a state-owned bank said. “If they announce any new tools for sucking out the liquidity from the system, then the market might react to it, but if it will be limited to commentary, then the market will rally (the yields will fall) tomorrow (Thursday).”

The yield on the benchmark 10-year government bond settled at 7.17 per cent, compared to 7.16 per cent on Tuesday.

Meanwhile, the Indian rupee settled at Rs 82.84 per US dollar, flat against Tuesday, as investors refrained from placing large bets ahead of US key inflation data scheduled to be released on Thursday.

The US annual consumer price index (CPI) is expected to rise to 3.3 per cent in July due to the base effect. The core inflation is expected to have risen 0.2 per cent for the second consecutive month. It would be the smallest consecutive rise over a period of two and a half years.

The Federal Reserve considers the consumer price index's core measure, which excludes food and energy costs, to be a more reliable gauge of underlying inflation.