The Reserve Bank of India kept its near term liquidity operations running into a second week, announcing an overnight variable rate repo auction for Wednesday, October 21 with a notified amount of 50,000 crore rupees, a one day tenor and reversal on October 22, after a review of current and evolving liquidity conditions. The notice follows Monday’s seven day repo, in which the bank allotted 100,014 crore rupees against 150,735 crore of bids at a 5.51 percent cut-off, a result this site reported on October 19.
The two sided market that made the injections necessary is visible in the central bank’s own statement for Friday, October 16. Banks parked 158,474 crore rupees in the standing deposit facility at 5.25 percent that day while taking 8,316 crore at the marginal standing facility at 5.75 percent, and the system’s net position including outstanding operations was absorption of 199,647.95 crore rupees. Call money traded at a weighted average of 5.39 percent and triparty repo at 5.76 percent. Durable liquidity, measured on September 30, stood at a surplus of 1,014,401 crore rupees, so the operations are smoothing a distribution problem, not funding a shortage.
Friday’s dated securities auction is the supply side of the same week. The government will reissue 19,000 crore rupees of the 6.53 percent 2031 security and 14,000 crore of the 7.71 percent 2066, a total of 33,000 crore, by multiple price auction on October 23 with settlement on October 26, and retains a greenshoe of up to 2,000 crore on each line. Both securities are open for when issued trading from October 21.
The 2066 line is the informative one. State borrowers rejected or curtailed bids at cut-offs around 8 percent in Monday’s state auction, and Monday’s switch auction filled barely half its notified size, both reported here on October 19. Whether the sovereign’s own 40 year paper clears in full on Friday, three weeks into a tightening cycle, is the cleanest read on term premium the Indian market will offer this month.