The Reserve Bank of India (RBI) is reverting to the multiple price method for all auctions of government bonds.
- The RBI’s move will improve liquidity in securities as the ownership will not be concentrated with few large players, that are heavy on cash.
- 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.
