Sharp Rise In Bids At 364-D Treasury Bill Auction

This was in glaring contrast to Rs 436 crore received at the previous one.

The bids accepted amounted to Rs 834.55 crore compared with Rs 321 crore at the previous auction

The increased participation by the banks indicated that the liquidity was expected to remain easy in the next few weeks.

If a cash reserve ratio cut is effected, there will be an addition to the liquidity in the system, which in turn, would lead to a rise in the prices of gilts .

The increase in the number of bids was witnessed, despite the fact the cut-off price of the one-year paper was fixed at Rs 88.80.

 

In fact, the weighted average price rose to Rs 88.85 from Rs 88.81, mirroring the fact that banks were willing to pick up the paper even at a lower interest rate.

The indicative yield-to-maturity was unchanged at 12.65 per cent.

The Reserve Bank of India received a total of twenty seven bids amounting to Rs 879.55 crore. Out of these,twenty three bids were accepted.

Dealers were of the opinion that while rates in the inter-bank money markets are ruling on the lower side, the one-year and the 91-day paper will continue to be catch the fancy of players.

Trading in most government securities has picked up and the prices have move upwards.

The heightened trading, in a large measure, was attributed to the expectations of a reduction in reserve ratio requirements (CRR) of banks.

Players in the money market said a one-per cent reduction in CRR requirements would inject liquidity to the extent of Rs 4,000 crore into the banking system.

Banks will then seek to deploy the surpuls funds in government securities. This would generate additional demand for gilts, thereby driving up their prices.

Besides, the cut in reserve ratio requirements, there is also an expectation, of global depository receipts (GDR) proceeds of State Bank of India coming into the system which is likely to keep the money situation easy.