The Hindu Business Line : Rs 5,000-cr gilts sale cancelled

CONCERNS of a liquidity crunch in the domestic debt market have led the Reserve Bank of India to cancel the Rs 5,000-crore auction of dated security scheduled to be held during October 18-25.

As per the indicative calendar for issuance of Government securities issued on September 20, the Government had scheduled this auction to be held during this period.

In a press release, the central bank said that the auction had been cancelled "after taking into account all relevant factors".

Analysts said among the various reasons that might have motivated the central bank to cancel the auction, liquidity pressure in the market was likely a key factor as indicated by the dwindling amounts placed in the repos.

Dealers said inter-bank rates have been inching up steadily to 4.6 per cent levels as against 4.25 levels just a few weeks ago.

While bond yields have been hardening for a while now, the higher yield fixed on the recent auction of the 7.38 per cent 2015 paper at 6.99 per cent fanned renewed market apprehensions of higher interest rates, which led to a further hardening in yields.

Dealers said another reason for the Government to cancel the auction must be to assuage market sentiment in order to soften bond yields.

"After all, higher yields would also lead to a higher cost of borrowing for the Government and would impact the borrowing programme", said a dealer.

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