The Reserve Bank of India (RBI) pressed ahead with variable rate reverse repo auctions (VRRRs) to suck out surplus liquidity from the banking system since June 30, in keeping with its monetary policy stance to remain focussed on withdrawal of accommodation.

The central bank, on Friday, conducted a 4-day VRRR for ₹2-lakh crore. Banks collectively parked ₹1,06,224 crore at a cut-off rate of 6.49 per cent.

RBI has been conducting VRRR everyday since June 30 to ensure that the overnight call money rate hovers close to the target rate of 6.50 per cent, according to market experts.

“Typically, governments (Central and State) pay contractors and disburse salaries towards the end of a month or the first week of next month. So, Banks have inflows. Further, return of ₹2,000 bank notes by the public is adding to the systemic liquidity. So, the RBI is conducting VRRR,” said RC Reddy, Head-Treasury, Karur Vysya Bank.

CARE Ratings, in a report, said month-end government spending and deposit of ₹2,000 denomination banknotes led to a rise in surplus liquidity above ₹2-lakh crore since July 3.

The RBI recently said that ₹2.72-lakh crore, or 76 per cent of the ₹2,000 banknotes in circulation as on May 19, have returned to the banking system as of June-end.

Of the total amount of ₹2,000 banknotes received as on June 30, about 87 per cent were in the form of deposits and the remaining 13 per cent were exchanged into other denomination banknotes.

“As a result, monthly average surplus liquidity stood at ₹1.24-lakh crore, over the last one month, up from ₹97,139 crore a month ago. Going ahead, the RBI could continue intervening via reverse repo auctions to keep liquidity close to neutral,” said the rating agency.

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