Mumbai, Aug 9 (): RBI will sell cash management bills (CMB) on Monday and Tuesday in order to beef up the rupee. Each bill will be of Rs 11,000 crore. The maturity date will be announced one day before the auction date. On July 25, RBI had issued a similar CMB.
RBI plans to set the date of maturity on September 17 for Rs. 22,000 crore and through this method it gets to fix the date when cash can be released to the markets. The previous CMB had a duration of 25 and 24 days while this time it is expected to be around 34 days.
Treasury bills have fixed tenure of 30, 91, 182 and 364 days in September. The companies have to pay advance tax and there will be a liquidity crunch. The CMB will offset this. CMBs are popular with mutual fund houses as any bill maturing within 60 days keeps them insulated from losses and valued at present rate.
These bills will keep away speculative traders from attacking the rupee and also increase short-term interest rates. US Fed has indicated the tapering of the stimulus of buying $85 billion per month in September. This will bring in choked liquidity in the banking system and investors who invested in markets like India have pulling out.
Dollar has strengthened against all Asian currencies. Rupee has lost around 10% against the dollar. RBI put a cap of Rs 75,000 crore for banks to borrow at 7.23% and through marginal standing facility at 10.25%. It next cut the cap to Rs. 7,500 crore and to retain on a daily basis 99% of the money it has to keep with RBI.
RBI meeting held yesterday to study the situation decided that some measures to solve the CAD and the falling rupee will be announced next week by Finance minister and ruled out issuing sovereign bonds to tackle this. The new Governor designate has two more weeks to start functioning. He said that the challenges that Indian economy is facing will be overcome.