The Reserve Bank of India will conduct price-based auction of Rs 5,000 crore of 9.39 per cent 2011 paper on Wednesday (July 25) and the auction will complete more than 58 per cent of the gross government-borrowing programme of Rs 1,19,770 crore within the first four months of the financial year. Dealers were expecting the auction as the ways and means advances (WMA) figure continued to stay over the upper limit of Rs 10,000 crore.

The chief dealer of a pvt sector bank said that going by WMA, auction was expected. We expect another auction of similar amount in the next week as well, the apex bank, which have been mostly conducting auction of very long papers, decided to auction a slightly lower maturity and at the very long end of the market there is no appetite, and hence the central bank has done the right thing by announcing the auction of a slightly shorter term paper.

Dealers said the market had enough liquidity to absorb the auction. The treasury head of a nationalized bank said. that there will be inflows of Rs 6,000 crore on account of the redemption of government securities and coupon payments. This alone will take care of auction outflows, So far all the auctions conducted this fiscal were oversubscribed and this is expected to be no exception.

Government security prices fell by 10-15 paise at the longer end as everybody was expecting the auction. Dealers expect prices to stage rally in the 5-10 year maturity segment after the auction.