“On a review of the prevailing and evolving market conditions, the RBI, in consultation with the Government of India, has decided that all securities under the market borrowing programme of Government of India shall, henceforth, be auctioned using multiple price auction method,” the RBI said on Monday.
ET had reported on March 8 that at a meeting with bond market participants, the RBI had held discussions on returning to the multiple price method for government bond auctions.
In a multiple price auction, buyers are allotted bonds at the particular price at which they have bid as long as the bid was above the cutoff price set by the RBI. In the uniform price method, all investors receive bonds at the same price, regardless of where they placed bids. Typically, multiple price auctions encourage deeper price discovery in the market, although the method can lead to volatility during episodes where the outlook on bonds is unfavourable.
In July 2021, the RBI said it would use the uniform price auction method for primary auctions of most government bonds, seven years after it said that such auctions would be held via the multiple price method. When the RBI announced the shift to the uniform price, the central bank was faced with multiple episodes of weak demand for government bonds amid a huge increase in public borrowing due to the Covid crisis.
