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The Reserve Bank of India (RBI) is planning to enhance the 14-day variable reverse repo rate (VRRR) auction amounts in December.
This comes even as it continues to rebalance liquidity conditions in a non-disruptive manner while maintaining adequate liquidity to meet the needs of the productive sectors of the economy.
The central bank will conduct a VRRR auction for ₹6.5 lakh crore on December 17 and for ₹7.5 lakh crore on December 31.
Consequently, from January 2022 onwards, liquidity absorption will be undertaken mainly through the auction route, RBI Governor Shaktikanta Das said.
RBI had undertaken the 14-day VRRR auctions on a fortnightly basis beginning October 8, 2021 (₹4 lakh crore), followed by ₹4.5 lakh crore on October 22, ₹5 lakh crore on November 3, ₹5.5 lakh crore on November 18, and ₹6 lakh crore on December 3.
“In response to this increase, overnight collateralised money market rates have mildly firmed up in recent times. By and large, the rebalancing of liquidity has proceeded in a timely and non-disruptive manner as planned.
“It is also fulfilling its objective of strengthening the Reserve Bank’s control over the liquidity overhang which, in turn, reinforces the ability of the Reserve Bank to normalise liquidity conditions when warranted,” the Governor said.
Longer term VRRRs
Das emphasised that going forward, the main operation of 14-day VRRRs will continue to be complemented by longer term VRRRs, the size and maturities of which will be decided on the basis of continuous assessment of the evolving liquidity conditions.
The Reserve Bank also retains the flexibility to conduct fine-tuning operations of varying amounts/maturities as and when required.
“As I have repeatedly stressed in my statements and speeches, the endeavour of the Reserve Bank is to put in place an effective liquidity management framework that is consistent with an economy emerging out of the pandemic and having a nascent but strengthening recovery,” he said.
“The Reserve Bank also stands committed to undertake operation twists (OT) and regular open market operations (OMOs) as may be required for effective monetary transmission and anchoring of interest rate expectations in line with the evolving macroeconomic and financial conditions,” the Governor said.
As a step towards rebalancing the liquidity surplus, the RBI decided to provide one more option to banks to prepay the outstanding amount of funds availed under the targeted long-term repo operations (TLTRO 1.0 and 2.0) announced on 27th March and 17th April, 2020.
It may be noted that banks have already prepaid ₹37,348 crore in November 2020, which constituted about one-third of ₹1,12,900 crore availed under the scheme.
“Let me reiterate that we remain committed to our stance in support of our overarching priority at this juncture to broaden the growth impulses while preserving monetary and financial stability. We will also continue to encourage adequate flow of credit to all productive sectors of the economy,” the Governor said.
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