Liquidity dries up on RBI's sterilisation drive, govt cash balances

The yields on the 10-year bond closed at 7.03% on Tuesday, while the three-month treasury bill closed at 6.12%

Liquidity in the system is slowly drying up as the Reserve Bank of India (RBI) pursues an aggressive sterilisation exercise at a time the government has built up huge cash balance, owing to the goods and services tax collection, while holding back the input tax credit benefit. 

Short-term rates have started inching up, because of the tightness in liquidity. Longer tenure rates have risen about 50 basis points in the past three months, following Rs 90,000 crore of secondary market bond sales by the central bank. In addition, the RBI has also sold about Rs 1 lakh crore of bonds