The Reserve Bank of India (RBI) rejected all bids for 182-day and 364-day treasury bills while accepting only 91-day bills at its auction on Wednesday, signaling its discomfort with rising short-term yields ahead of the monetary policy decision due on Friday.
Auction Details and Market Reaction
The RBI sold 91-day treasury bills at a yield of 5.56%. The central bank typically rejects bids when it finds yields too high, and this move is widely seen as a signal that it wants interest rates to soften. The decision comes as the Monetary Policy Committee (MPC) began its meeting to decide on interest rates, with the outcome scheduled for Friday and market expectations that rates will be held steady.
Following the auction, yields on government bonds fell. This marks the second instance in under three months where the RBI has cancelled treasury bill sales. Yields on one-year paper have risen by 40 basis points this fiscal year due to the rupee coming under pressure.
Spread Widens to Four-Year High
The spread between 364-day treasury bill yields and the policy rate widened to 78 basis points last week, the highest level seen in four years, indicating declining market appetite for longer-dated paper.
SBI Chairman Advocates for Rate Pause
Speaking at a Citibank conference in Mumbai, State Bank of India chairman CS Setty said a pause in interest rates at this stage would help stabilise economic conditions and support growth. He noted that inflation remains an important consideration for policymakers, while adding that market expectations broadly favour a pause at this juncture.
Setty advised investors to focus on India's long-term structural growth rather than short-term movements in equity markets. He emphasised that India remains relatively stable amid global uncertainties such as geopolitical tensions, shifting supply chains, and changing capital flows.
