RBI rejects Rs 11,000cr bids in gilt auction
MUMBAI, Dec 31: At a time when the government plans to borrow an extra Rs 50,000 crore from the market to meet additional spending requirement, the RBI in Friday's scheduled government securities (G-Secs) auction rejected bids worth Rs 11,000 crore. The reason? The yields demanded by bidders was very high. The central bank's move came after the 10-year benchmark yield touched a new 18-month high at 7.41per cent early in the session.
On the one hand, a rising benchmark yield puts pressure on all commercial lenders to hike their lending rate of interest. On the other, in a rising interest rate regime, the RBI's ability to cut rates would be limited, market players said.
RBI data showed that bids worth Rs 3,000 crore for gilts of five-year and worth Rs 8,000 crore for 14-year tenures were not accepted by the bank. However, gilts worth Rs 2,000 crore each for 16-year and 29-year tenures were accepted by it. "There was no problem with long-dated papers since insurance and pension funds were ready buyers for these papers," a bond dealer said.
Market players said that given the current situation, there is every possibility that the benchmark yield may harden further to 7.70per cent level in case the RBI does not go for buying gilts through open market operations (OMOs).