Reserve Bank of India (RBI) will suck out Rs 6,000 crore through a bond auction under the market stabilisation scheme (MSS) on Wednesday. The 7.55% 2010 bond will be sold through a price-based auction using multiple price method.

DNA Money had reported on May 10 that dealers were expecting an auction of at least Rs 5,000 crore through MSS.

The move follows the improvement in money market liquidity in the last few days. The inter-bank call money rate fell to as low as 2% on Thursday because of government spending and parking of extra reserves by banks in the call market due to the Rs 3,000 crore ceiling on reverse repo lendings. Even on Friday, the call rate ended below 6% due to ample liquidity. However, the auction was expected.

“It was expected. The regulator would want the overnight lending rates to be in the 6-7.75% corridor. Now that the auction has been announced, I expect call rates to rise above 8%,” U Venkat Raman, head of treasury, IDBI Bank said.

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Posted: 05|12|07 at 7:34 am. Filed under: News.