Rbi Pegs Rate Floor With 4% Repo Cutoff

Internationally, the rate at which banks can reposses securities sold to the central bank acts as an interest rate signal to the money markets.

With this cut-off, the RBI has indicated the rate at which it expects overnight money rates to hover. Rates in the inter-bank call money market are expected to open at 4 per cent today. The rates will tighten marginally to 4-5 per cent this week from the current 2-3 per cent, following the 4-per cent cut off. These rates, according to the central bank, are more realistic than the abysmally low levels of 2-3 per cent prevailing currently.

 

At the four-day repos auction, the RBI received 42 bids for Rs 1,325 crore. Of this 29 bids quoted at a cut-off rate of four per cent and below for a total amount of Rs 932 crore were accepted. Most of the institutions put in money into the paper and some of the lending banks participated.

As a reaction to the temporary sucking out of liquidity worth Rs 932 crore from the system, the prices of securities started looking down. The zero-coupon 2000 paper which quoted at Rs 62.88 in the morning dipped to Rs 62.75 towards the afternoon. The 13.70 per cent 1999 paper moved down to Rs 104.25 from Saturdays Rs 104.50.

The yield on the 91-day treasury bill, which had reached the years low of 6.94 per cent at the recent auction, is expected to stay at that level.

Market operators say there will be another repos auction announced soon since there would be an inflow of approximately Rs 2,000 crore into the system on November 9 following the next 0.5 percentage point cut in cash reserve ratio. Also, the RBI will repurchase the securities put up for auction yesterday.