Comments
In a surprise move, the Reserve Bank of India (RBI) on Tuesday conducted two one-day variable rate reverse repo (VRRR) auctions to drain out liquidity from the banking system and re-anchor overnight money market rates at a higher level.
Market players said this is probably the first instance of two VRRR auctions being conducted on the same day. In the first VRRR auction, the RBI received offers from banks to deploy funds for a day aggregating ₹27,538 crore, against the notified amount of ₹75,000 crore. The central bank absorbed these funds at a weighted average rate of 6.49 per cent.
Later, the RBI came up with a second VRRR auction announcement to suck out ₹50,000 crore (notified amount). At this auction, banks offered to park ₹41,804 crore. The RBI accepted these offers at a weighted average rate of 6.49 per cent.
Gopal Tripathi, Head - Treasury and Capital Markets, Jana Small Finance Bank, said after the first VRRR auction, some banks would have still been left with surplus funds. So, they would have approached the RBI for deploying these funds. Hence, it conducted the second VRRR auction.
The overnight money market rate has declined to around 6.30 per cent, against 6.50 per cent to 6.75 per cent last week. So, the RBI seems to be trying to re-anchor the rate at a higher level in keeping with its withdrawal of accommodation stance.
Overall liquidity deficit in the banking system has shrunk to Rs about Rs 1.22 lakh crore as on February 5, against the recent peak deficit of about ₹3.46-lakh crore as on January 24.
RBI Governor Shaktikanta Das, in his December 2023 monetary policy statement, noted that the evolution of liquidity conditions has been in alignment with the monetary policy stance.
“Going forward, government spending is likely to further ease liquidity conditions. On our part, the Reserve Bank will remain nimble in liquidity management,” he had said then.
Meanwhile, the RBI said it will conduct a one-day VRRR auction to drain out liquidity amounting to ₹50,000 crore.
Comments
COMMENT NOW
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.