The Reserve Bank of India (RBI) has rejected all bids for its auction of 91-day and 182-day treasury bills, amounting to Rs 26,000 crore, in an effort to ease liquidity in the banking system. This move comes as the RBI has been selling dollars in the foreign exchange market, which has reduced rupee liquidity. The decision is seen as a surprise, as it goes against market expectations, and is likely due to the government’s strong cash balance generated from tax collections.
The RBI did, however, accept bids for its auction of 364-day treasury bills, worth Rs 7,000 crore, at a yield of 6.56%. Additionally, the RBI conducted open market operations, accepting offers to sell bonds worth Rs 40,000 crore, as part of its liquidity infusion measures. Despite these efforts, the banking system remains in a deep deficit, with banks having borrowed around Rs 2 lakh crore from the central bank as of Wednesday.
The RBI’s month-long liquidity infusion package has involved buying bonds worth Rs 1 lakh crore via auctions and another Rs 38,800 crore via secondary market transactions. Market participants are now waiting for the RBI’s next steps to address the liquidity deficit, which has been exacerbated by the central bank’s intervention in the foreign exchange market. The move is seen as a significant development, highlighting the challenges faced by the RBI in maintaining a stable banking system and the importance of effective communication with the market.