Commercial banks oversubscribed the government's 16th three-month treasury bill auction this week, following a pattern established in the past six months, and a ministry official said that there was still room for growth on the T-bill market.


According to the Moscow Interbank Currency Exchange, where the T-bills were sold, demand at the auction Tuesday exceeded supply by 17.9 percent. A total of 595.6 billion rubles ($289 million) in bids were satisfied, about 40 percent less than at the previous auction two weeks ago.


The drop in volume was a natural result of the Finance Ministry's recent decision to switch from monthly auctions to biweekly ones.


"We're just spreading out the sales over two auctions," said Marina Chekurova, deputy head of the Finance Ministry's public securities and financial markets department. "We do it to make the process smoother, so that the dealers can process smaller amounts of money at a time."


Chekurova said that although the Moscow market for T-bills, which reached its peak in June with a 1.5-trillion-ruble auction, cannot expand much further, the Finance Ministry is planning to start selling the bills throughout the country by the end of the year.


"There is still a big reserve for growth outside Moscow," she said, adding that the ministry is now busy establishing the computer infrastructure necessary for the expansion.


The annualized average yield of the T-bills at Tuesday's auction dropped to 151.96 from 154.65 percent previously. Chekurova attributed the drop to the Central Bank's decision earlier this week to lower its refinancing rate from 155 percent annually to 150 percent.


"Our forecast is that the yield will continue coming down slowly," Chekurova said, adding that the yield depended on the government's credit policy as well as the current interest rates on the interbank credit market.


Economists earlier had said the yield on the T-bills was too high. Andrei Illarionov, an economist with the government's Center for Economic Reform, recently called the issuing of the treasury bills a "pyramid scheme," saying that the government would need to bring down inflation and yields to continue selling the bills without hurting itself.