RBI rejects bids for shortest tenure T-bill

The Reserve Bank of India rejected all bids for 91-day treasury bills at an auction held on Wednesday, reflecting its discomfort for higher short term rates. This is the first such instance since 24 February 2016.

The RBI was planning to sell 91-day T-bills worth ₹9,000 crore. According to traders, the step by the central bank is a reflection of the short term liquidity tightness in the system.

Liquidity deficit in the system is around ₹1.48 trillion as of Tuesday, according to RBI data. The tightness in liquidity was mainly due to outflows related to payment of advance tax, and goods and services tax (GST), which weighed on the liquidity of banks.

“During the last T-bill auction, yield on 91 day bill was fixed at 6.73%. This time market expectation was around 7.15-7.20% due to March factor, so people would have bid around that. RBI would have thought it is too high and decided to cancel,” said Gopal Tripathi, president and head of capital markets at Jana Small Finance Bank.

Yields on shorter bonds fell after the auction results. The five-year yield was down three basis points at 7.18%. RBI sold ₹ 16,000 crore of 182-day bills at 7.2820% cutoff yield and ₹ 14,000 crore of 364-day bills at 7.3064%, it said.

Traders said liquidity is expected to remain tight for the next few days on redemption of ₹61,131 crore of targeted long term repo operations (TLTRO) in April.

To address liquidity deficit, RBI on Wednesday said it has made available an additional ₹5,000 crore under Standing Liquidity Facility.

“Reserve Bank of India has decided that an additional amount of ₹5,000 crore will be made available under the Standing Liquidity Facility for standalone primary dealers on March 31, 2023 at prevailing repo rate,” it said in a release.

The amount availed under the special arrangement will be repayable on or before 5 April 2023, RBI added.