The Hindu Business Line : RBI steps to sterilise Re funds

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Mumbai March 2 With rupee funds flooding the system on the back of dollar inflows, the RBI has significantly altered measures to sterilise them (rupees).

It has put a ceiling of Rs 3,000 crore on the free funds parked daily by banks with it through the reverse-repo facility. In a press note issued today, the RBI said daily reverse repo absorptions would be limited to a maximum of Rs 3,000 crore each day, comprising Rs 2,000 crore in the first Liquidity Adjustment Facility (LAF) auction and Rs 1,000 crore in the second auction. In case of partial rejection of bids, allocations would normally be made proportionately on a pro-rata basis.

Banks parked a total of Rs 1,18, 820 crore with RBI this week earning 6 per cent interest.

Free funds not taken up under LAF will be absorbed by the RBI through an enhanced Market Stabilisation Scheme (MSS).

Under the modified MSS, the RBI, subject to liquidity conditions, will announce every Friday the possibility and the quantum of MSS issuances for the succeeding week.

For the week ending March 9, MSS auctions have been scheduled to absorb Rs 8,500 crore. On March 6, there will be an auction of dated security - 6.65 per cent 2009 - for Rs 6,000 crore; on March 7, there will be T-bill auctions of Rs 2,500 crore. Till date the MSS operated with an annual ceiling with that for 2006-07 being Rs 70,000 crore. Under the MSS, Rs 16,457 crore has been sterilised so far in the current year and the outstandings are put at Rs 45,457 crore. Apparently, the cap on MSS seems to have been relaxed, feel analysts.

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