RBI Rejects T-Bill Bids Amid Tight Banking Liquidity

The Reserve Bank of India (RBI) did not accept bids for treasury bills as investors sought higher yields amid tight liquidity in the banking system. As liquidity conditions remain strained due to tax outflows, the RBI had to inject funds through variable rate repo auctions. Further measures are anticipated.

On Wednesday, the Reserve Bank of India (RBI) rejected all bids for treasury bills at auction, attributing the decision to investors' higher yield demands amid tight banking liquidity conditions.

The central bank's move to not accept any bids for 91-day, 182-day, and 364-day T-bills came as a response to increased yield cut-off demands by 0.05-0.10 percentage points compared to past auctions.

This decision reflects the strained liquidity scenario in the banking system, influenced by tax outflows. To alleviate pressures, RBI has been injecting liquidity through variable rate repo (VRR) auctions, infusing Rs 2.08 lakh crore thus far, with the expectation of conducting more such auctions to stabilize interest rates.

(With inputs from agencies.)