With the gradual reduction of liquidity deficit, market’s comfort will improve and the long-term yields too will start to soften
Mumbai: The biggest impact of Reserve Bank of India governor Raghuram Rajan’s transformational shift in liquidity policy was felt on Wednesday when the yield on the T-Bills auction fell more than 40 basis points in just about a week.
At the routine debt securities sales, the cut-off yields — below which an investor could not obtain allotment — for the 91-day T-Bills was at 6.85%, downfrom7.26%onthepenultimate day of last fiscal year. Yields on the 182-day treasury bills was at 6.93%, levelsnotseenformorethanfiveand a half years.
“Short-term yields have started falling while long term yields will gradually dip,” said Dhawal Dalal, head, fixed income, DSP BlackRock Investment Managers. “As liquidity deficit gradually reduces, then market comfort will improve.”
RBI’s declaration that it would end its policy of keeping the banking systemindeficitof cashandmoveto neutral has given the confidence to bankersthattheyneednotgotoitfor their daily needs on a normal day. The expectation is that the RBI will buy more bonds and the US dollar flows from the market which could push the yields down. RBI has decided to “progressively lower the average ex ante liquidity deficit in the system to a position closer to neutrality” in its monetary policy.”
The government borrowed ₹ 15,000 crore collectively through those securities. The yields were 24-45 basis points lower than the previous auction on March 30.
The inter-bank call money rate, at which banks borrow and lend each other, too dropped as low as 6%, 50 basis points lower than the policy rate. Call rates rose as high as 7.45% before the financial year end.
The average daily liquidity injection (including variable rate overnight and term repos) increased from ₹ 1.34 lakh crore in January to ₹ 1.9 lakh crore in March.