RBI To Suck Out Rs 1 Lakh Crore Through T-Bill Auctions
T-bill auctions have been scheduled between April 17 and May 8.
The Reserve Bank of India (RBI) has moved to suck out additional liquidity in the system by announcing the auction of treasury bills (T-bills) in four tranches.
The central bank will auction Rs 1 lakh crore in T-bills under the market stabilisation scheme (MSS), it said in a release on Thursday evening. The bills would be auctioned between April 17 and May 8 with the tenor of the bills being set at close to one year.
A surge in deposits after demonetisation and weak credit growth have led to excess liquidity in the system, which has driven down money market rates. The overnight call money market rate, for instance, has been below the benchmark repo rate of 6.25 percent for some time now. In its April 6 monetary policy review, the RBI raised the reverse repo rate by 25 basis points to 6 percent to bring market rates closer to the benchmark rate. However, easy liquidity has prevented this objective from being achieved.
The T-bill auctions are a good choice as they will help suck out liquidity even from mutual funds, Soumyajit Niyogi, associate director at India Ratings & Research, told BloombergQuint. “RBI can absorb liquidity from mutual funds through this. Also T-bills are repo-able so if someone wants to exit, they can,” Niyogi said. He added that the announcement of this auction should push overnight rates higher when the market reopens on Monday. Markets are closed on Friday on account of Good Friday.
MSS auctions are one of the many means available to the RBI to suck out liquidity. The RBI also uses the reverse repo auctions, open market operations and, in extreme circumstances, the cash reserve ratio to adjust the liquidity situation in the market.