Strange Things are Happening in the Liquidity Bazaar

by Paul Joseph on July 19, 2013 · 0 comments

In the days following the RBI hike in rates , we are seeing interesting movements in the fixed income markets. Repo Bids Rise Substantially, But No MSF Repo is what banks borrow overnight from RBI at 7.25%. MSF is the same thing, at 10.25%. Ever since the repo limit was introduced at 75,000 cr. (Previously: no limit) Repo bids have gone up like crazy, but only 75,000 cr. was allocated. However, the higher bids don’t mean that banks are desperate for funds – there was little or no borrowing in the MSF window for these days. Date Repo Bids (Cr.) Repo Given MSF 16-Jul                   2,16,350               2,16,350 5 17-Jul                   1,41,970                   75,000 0 18-Jul                       97,265                   75,000 0 19-Jul                       56,860                   56,860 ? Note that the restrictions on Repo were from 17 July. From Game Theory, banks will attempt to bid more (since the repo allocation is pro-rata to the bid size every day), but even that impact has subsided with 19 July seeing less than the 75K cr. bid. T-Bill auctions rejected RBI conducts weekly auctions of about Rs. 12,000 for Treasury bills. This week, on wednesday, all bids were rejected for the two auctions …

[via Capital Mind]

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