Auction Yields Send Conflicting Signals

Fallout of bank rate cut: secondary market yields decline

The Reserve Bank yesterday sent conflicting signals to the market by maintaining the cut-off yields in the primary auctions at the last weeks level despite the 100-basis point bank rate cut.

While the cut-off on the 91-day treasury bill was unchanged at 7.02 per cent, the rates in the 14-day treasury bill and the repo auctions were pegged at 4.96 per cent and 4 per cent, respectively.

Though the RBI had cut the bank rate in a bid to signal a lower interest rate regime, this has not materialised in the latest round of auctions. Says Ashish Pitale of I-Sec: There will be a time lag of nearly two to three weeks and the results will be known only then.

 

The RBI mopped up Rs 250 crore at the repos auction at a weighted average rate of 4 per cent. A total of four bids were received for Rs 3,400 crore. In the 91-day T-bill auction, the Rs 300 croe issue was fully subscribed with Rs 174.295 crore from competitive bids and Rs 125.705 crore from non-competitive bids. The cut-off price was Rs 98.28.

In the 14-day T-bill auction, a total of Rs 1000 crore was accepted from one competitive bid with no devolvement on the primary dealers. The cut-off price was Rs 99.81

Sources said that the three primary auctions yesterday provided an opportunity to the Reserve Bank to indicate its intention to continue lowering interest rates that had commenced with the one-percentage point bank rate cut. Says a banker: The bank rate cut is supposed to send a signal to the market about lower interest rates, but the RBI itself is not lowering yields at the primary auctions.