Twin-Paper Auction For Rs 6000 Crore Today

The Reserve Bank of India (RBI) is pulling all stops to suck out excess liquidity from the market. After mopping up Rs 4,000 crore through the open market sale of 10.25 per cent 20-year bond at Rs 102.50 today, the apex bank announced a twin auction worth Rs 6,000 crore. The auction, to be conducted through open market operations (OMO) on Thursday, carries a 6-year paper at 13.05 per cent for Rs 2000 crore and the 10.71 per cent 15-year paper for Rs 4,000 crore.

"The yields of gilts were heading towards unsustainable low levels on the back of easy liquidity. The move by the central bank is aimed at sucking out liquidity from and arresting the fall in yields," said a dealer with a private sector bank, Liquidity in the money market turned extremely good following the Rs 8,500 crore of inflow on account of redemption of 11.75 per cent 2001 paper on Saturday. This was followed by Rs 161 crore of coupon payments of the 10.70 per cent 2020 paper yesterday. The inflow, however was not countered by any outflow except the repo outflows. The repo outflows were Rs 12,525 crore, Rs 13,000 crore and Rs 15,500 crore respectively on Monday, Tuesday and Wednesday, reflecting a very easy liquidity situation. Dealers said that as there was no demand in the call money market as every bank is flooded with liquidity, the big lenders have put money in the repo auction.

 

Dealers are expecting both the auctions to get good response on the back of a very fluid money market condition. A dealer said, "both the stocks are illiquid ones. But given the money market condition both are likely to be oversubscribed." Dealers are expecting the cut-off price for the 13.05 per cent paper to be around Rs 118.25 and for the 10.71 per cent paper around Rs 106.55-106.60.

Government security prices which have been going down since the beginning of the week went down by 35-40 paise at the long end of the market following the auction announcement.