Treasury bill yields start inching higher on liquidity normalisation

The auction cut-off of short-term treasury bills (T-bills) showed that rates have inched up to the policy corridor between repo and reverse repo rate, indicating a normalisation. This also indicates that the ultra-loose monetary policy has come to an end in the country, even as on paper the RBI will maintain its stance at accommodative for some more time.

RBI last week stepped into normalise its ultra-loose liquidity policy by introducing a Rs 2 trillion 14-day reverse repo auction. 

On Wednesday, the cut-off yield on 91-day T-bills was 3.32 per cent, against 3.28 in the previous auction; for 182-day T-bills it was 3.54 per cent, against 3.45 earlier; and, for 364-day T-bills it was 3.62 per cent, compared with 3.58 per cent in the last auction.

Rates on commercial papers and certificates of deposits have already inched up by 25-30 basis points (bps) since RBI’s announcement earlier this month that it would start to normalise its liquidity policy.

But the 10-year bond yield remained below 6 per cent and closed at 5.94 per cent due to RBI’s continued OMOs support. “Announcement of OMO purchase and large-term repo auction on January 15, suggests RBI’s careful management of interest in the economy,” said Soumyajit Niyogi, associate director at Ind-Ra.