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Informist, Wednesday, Jun. 3, 2026

 

--RBI did not accept any bids for 182-day T-bill at auction 

--RBI did not accept any bids for 364-day T-bill at auction 

 

MUMBAI – While most traders have been expecting the Reserve Bank of India's Monetary Policy Committee to keep status quo on the repo rate Friday, the few expectations that the committee could raise the rate this week were tempered after the central bank rejected all bids for the 182-day and 364-day Treasury bills at Wednesday's auction, possibly because the yields were too high, market participants said. The Centre could afford the rejection of bids--which is seen as a "yield signal"--because its coffers are well stocked after the central bank's record transfer of a surplus of INR 2.87 trillion for the financial year 2025-26 (Apr-Mar), they said.

 

"Market is expecting (that) it will be a hold on rates (Friday) because if you are not comfortable at these levels, then it surely says that after policy it (yields) will get better (lower). If they are going to hike rates at policy, then even these levels won't remain," a dealer at a mutual fund said. After the auction result was published, bond prices briefly recovered from a fall.

 

Traders had bid as high as 6.06%--the upper end of the range in an Informist Poll--for the 364-day T-bill at the auction, a spread of 81 basis points over the repo rate, as they factored in the possibility of the rate being hiked, dealers said. The RBI had last rejected bids for the 91-day, 182-day, and 364-day T-bills on Mar. 25.

 

As of May 22, the government's cash balance was INR 4.4 trillion, boosted by the RBI's transfer of surplus for FY26, according to Gaura Sen Gupta, chief economist at IDFC FIRST Bank. "It could be bids were very high and they are not comfortable, plus government also has decent cash now, given that they got dividend also from RBI," a dealer at another mutual fund said. "Maybe they were in a better shape to cancel this auction. It's not a very big amount to lead to any reduction in expenses, etc." By rejecting bids for the two T-bills, the Centre forwent a borrowing of INR 120 billion.

 

At 6.11%, the one-year overnight indexed swap rate is currently pricing in about three hikes of 25 bps each in the repo rate within 12 months. Bids for the one-year T-bill were likely about 6.10% Wednesday, based on observation from last week's T-bill auction result in which the bill's cut-off yield was about 8 basis points higher than consensus estimates, a dealer at a state-owned bank said. Wednesday, an Informist Poll of 14 market participants had estimated the cut-off yields on the 182-day and 364-day T-bills at 5.74% and 6.03%, respectively. The RBI set a cut-off yield of 5.56% on the 91-day T-bill Wednesday, up slightly from the Informist Poll estimate of 5.55%. The weighted average yield was 5.55%.

 

Most market participants expect the Monetary Policy Committee to begin raising the repo rate from August, which was reflected in bidding for the longer-tenure T-bills, they said. If the RBI had accepted high yields, it would have quickened expectations of a rate hike; the spreads of certificates of deposit over T-bills--which are already high--could have widened further, dealers said. Those who do not see the rejection of bids as a rate signal said it augured well for policy expectations as the move is contrary to expectations of the central bank tightening liquidity ahead of a likely rate hike cycle, they said.

 

"We are not seeing this as a rate signal, we are expecting liquidity measures, either at or before the policy (Friday). And the tone of the policy may not be as hawkish as market expects," a dealer at another state-owned bank said.  End

 

Reported by Cassandra Carvalho 

Edited by Rajeev Pai

 

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