The Reserve Bank of India (RBI) has slashed yields on papers sold through its open market operations window as the Resurgent India Bond (RIB) proceeds swapped into rupees are flowing into the system.
The State Bank of India has made investments to the tune of around Rs 4,400 crore in dated securities yesterday and Friday last, purely through purchases from the RBI's sale window. This amount has come in through the conversion of RIB proceeds into rupees.
With the slashing of the yeilds Reserve Bank hit two birds in one stone. It has sterilised the rupees flow into the system and also signalled that interest rates are not on its way up after the hike in cash reserve ratio.
Following the inflow of massive funds, the RBI yesterday hiked prices on the 11.95 per cent 2004 security to Rs 100.33 (Rs 100.32 as per the price list on Friday) and the 11.75 per cent 2006 to Rs 98.64 (earlier 98.63), while keeping the prices on the 11.19 per cent 2005 and 12.15 per cent 2008 constant at Rs 96.40 and Rs 99.92 respectively. The price list is effective from today. The 11.75 2003 which was being offered at Rs 100.01 or an yield of 11.73 per cent on Friday, has beenremoved from the sale list.
On Friday, the RBI succeeded in offloading securities worth Rs 2,400 crore to the SBI. With this nearly one third of the total RIB proceeds has not only flowed into the system but effectively been sterilised thorugh RBI's open market operations.
Drawing from the details provided in the subsidiary general ledger account transactions at RBI here, the SBI has purchased Rs 1,750 crore worth of the 11.57 per cent 2004 security (implying an yield of 11.83 per cent), Rs 400 crore of 11.75 per cent 2003 (11.74 per cent) and Rs 250 crore of the 11.19 per cent 2005 stock (11.96 per cent).
These were prices that RBI announced soon after it hiked the CRR and repo rate on Thursday. Most market players dismissed the price list as a customary action on RBI's part to signal that interest rates were not going to rise. However, the fact that SBI incurs a cost on keeping funds idle even for a day and has to deploy the money immediately is likely to find RBI a sure buyer of securities it has been saddled with, even at these prices. Besides, the amounts involved being huge, SBI may not be able to purchase securites from the secondary market, which lacks depth.
