 | « Back to article | Print this article |
The Reserve Bank of India (RBI) on Monday did a four-day variable rate reverse repo (VRRR) auction to reduce liquidity in the banking system as the overnight money market rates fell below the repo rate, said market participants.
The repo rate is 6.50 per cent.
Banks parked Rs 18,750 crore at the auction against a notified amount of Rs 50,000 crore at a weighted average rate of 6.49 per cent.
At the previous VRRR auction on Friday, banks had put in Rs 3,975 crore against a similar notified amount.
The weighted average call rate and the treasury bills repurchase rate had fallen to 6.13 per cent (the lowest since September 15, 2023) and 6.24 per cent, respectively, on Friday as liquidity eased in the banking system.
The rates stood at 6.47 per cent and 6.28 per cent, respectively, on Monday.
The liquidity deficit eased to Rs 1.1 trillion on Sunday against Rs 2.2 trillion on Friday on the back of government spending.
The RBI is fine-tuning liquidity operations. Whenever the interbank rates go beyond, say, 6.80 per cent, it conducts variable rate repo (VRR) auctions, and whenever the interbank rates go below the repo rate and towards the standing deposit facility rate, it issues VRRRs.
So in that way, it wants to keep the interbank rates in line, said V R C Reddy, head of treasury, Karur Vysya Bank.
Further, the central bank will conduct an overnight VRRR auction on Tuesday to suck out Rs 75,000 crore from the system.
Market participants said the central bank was conducting VRR and VRRR auctions to address skewed liquidity in the system.
Money market rates are one of the reasons.
Another reason is that it is trying to address the uneven distribution of liquidity, said a dealer at a state-owned bank.
The liquidity deficit had widened to a record Rs 3.46 trillion on January 24 on the back of tax outflows.
The liquidity deficit will remain below Rs 1.5 trillion for the week.
We have the Monetary Policy Committee outcome this week.
All eyes will be on the remarks on liquidity, said Reddy.
The domestic rate-setting panel is expected to maintain the status quo for the sixth consecutive policy review.
