MUMBAI: The Reserve Bank of India’s first fourday term reverse repo found no takers with bids from banks for less than a sixth of the target set at Rs 15,000 crore, indicating there may not be that much liquidity as was presumed by the central bank.

The reverse repurchase option, or repo, is a window through which RBI borrows from banks to suck out surplus liquidity. Lenders lend at 7%, the overnight reverse repo rate. Through the reverse term repo, banks bid for onlyRs 2,025 crore at a weight average rate of 7.96%. The cut-off rate was at 8%.

“Through this first-term reverse repo, the Reserve Bank was actually testing the waters for liquidity position,” said Ajay Manglunia, head – fixed income, Edelweiss Securities. “The lower acceptance of bids suggests that liquidity is comfortable and has not reached excess levels. People holding excess liquidity would not lend to inter-bank call market as it is unsecured lending with an individual cap on it.”

To borrow from the inter-bank call money market, a bank needs to pledge government securities. The overnight call rate closed at 7.97% weight average on Monday.

The Reserve Bank has been intervening in the local currency market to check the rupee’s appreciation against the greenback by buying dollars and, consequently, injecting rupee liquidity into the system. The rupee has appreciated about 4.5% so far this year, against a fall of 13% in 2013. This has fuelled speculationthe central bank may have to soon come out with measures like issuing market stabilisation bonds after a gap of four years to curb rupee liquidity due to dollar purchases.

Overseas investors, too, are buying Indian equities and debt papers. “This reverse term repo auction aims at sucking out excess frictional liquidity, which may be due to RBI interventions to check the rupee’s appreciation,” said Ashutosh Khajuria, head -treasury, Federal Bank. “Another reason for this auction is not to allow overnight rates to fall at the normal reverse repo level. If they fall around 7%, it is tantamount to notional rate cuts.”

With the weight average rate for the auction pegged at 7.96%, it caters as a floor rate for lenders and, therefore, overnight rates are likely to hover around that level.