With this hike, the RBI has attempted to correct the short-term yield curve, which is still skewed. Currently, the repo rate is pegged at 8 per cent, the 14-day T-bills at 8.10 per cent and the 91-day T-bills at 8.01 per cent. The central bank is also expected to hike the yields on the 14- and 91-day T-bills in the forthcoming auction to be held on Friday, dealers said.

The hike is in line with the recently concluded auction of the six-year paper for which the RBI had fixed an yield of 11.98 per cent against the market expectation of 11.95 per cent.

The market is not willing to accept short-dated securities at the existing secondary market levels as it expects interest rates to rise in the latter part of September, sources said. Currently, in the secondary market, the one-year 1999 paper trades at an yield of 9.5 per cent.

At the 364-day T-bills auction, the RBI received bids worth Rs 445 crore for a notified amount of Rs 400 crore. It accepted nine bids worth Rs 400 crore. The partial allotment percentage was 10.

Money markets analysts expect prices of short-dated papers to fall by another 5-10 paise during the week. "On Wednesday, there was some selling pressure in short-term papers, including the two new loans," sources said.

On July 31, the central bank had hiked the yield on the 364-day T-bills to 9.04 per cent against 8 per cent earlier.

In the last week of August, the RBI had hiked the yields on both the 14- and 91-day T-bills to 8.10 per cent and 8.01 per cent respectively, after it had hiked the repo rate by 300 basis points and raised the cash reserve ratio by 100 basis points. The central bank had unleashed the tight money measures after the rupee touched a record low of 43.70.