RBI gets overwhelming response to 14-day variable reverse repo auction

The Reserve Bank of India (RBI) received overwhelming response at the 14-day variable rate reverse repo auction it conducted under the revised Liquidity Management Framework on Friday, with banks tendering bids for 1.50 times the notified amount of ₹2-lakh crore.

This auction is the first one to be conducted after the RBI decided to temporarily suspend the aforementioned framework, which was issued on February 6, 2020, due to thepandemic.

This auction is part of the central bank’s measures to resume normal liquidity management operations.

The RBI received offers for parking liquidity aggregating ₹3,05,816 crore at the auction. It accepted offers aggregating ₹2,00,009 crore, with the cut-off rate and weighted average rate working out to 3.55 per cent and 3.46 per cent, respectively.

The surplus liquidity in the banking system is underscored by the fact that the RBI absorbed liquidity aggregating ₹6,70,642 crore at the one day reverse repo on Thursday at the reverse repo rate of 3.35 per cent.

Anurag Mittal, Senior Fund Manager – Fixed Income, IDFC AMC, said: “While this measure enables banks to bid higher than reverse repo rate, and hence can help moderately nudge up call and tri-party repo (TREPS) levels, from a policy standpoint, it doesn’t mark any new liquidity initiative, but is continuation of other recent normalisation measures like extension of market timings.”