Government evaluates Rs 30,000 million through cash management invoice

MUMBAI: Faced with government securities reimbursements (G-Secs) totaling Rs 1.35 lakh crore until January 16, the government said Thursday that it will auction the cash management (CMB) invoices on Monday to eliminate Rs 30,000 million of rupees This is the second CMB in the last two weeks. The government generally issues CMB to overcome situations of temporary liquidity mismatch.

RBI data shows that on Thursday the government had a redemption worth Rs 61,000 crore, while another worth Rs 74,000 crore is due on January 16. To meet this large demand for liquidity, the government is auctioning CMB, bond dealers said. On December 31, the government had mobilized Rs 30,000 crore through CMB of 76-day tenure. The CMB that will be auctioned on Monday will have a tenure of 70 days, the RBI release showed.

During the day, the central bank also announced its third 'operation twist', a move in which the government's banker will buy G-Secs of long and medium tenure worth Rs 10,000 crore and at the same time sell government bonds of less than one year Tenure This is the third such operation by the RBI in as many weeks, aimed at pulling down the 10-year benchmark yield, which is one of the main determinants of the lending rates by banks.

Since February this year, the RBI has cut interest rate five times, by a total of 135 basis points (100 basis points = 1 percentage point). However, just before the first operation twist was announced on December 19, the aggregate decline in yield on the 10-year G-Sec was 80bps - from 7.55% in early-February to 6.75% on that day. Even after two such operations by the RBI, the benchmark yield on 10-year G-Secs on Thursday closed at 6.51%, translating to a decline of 24bps in the last three weeks.