Money & Banking

RBI to conduct ₹2.25-lakh cr reverse repo auction

Our Bureau Mumbai | Updated on February 13, 2020 Published on February 13, 2020

File photo   -  Reuters

The RBI will seek to mop up a whopping ₹2.25-lakh crore via a 14-day variable rate reverse repo auction on Friday under its revised Liquidity Management Framework, which was unveiled on February 6. This move shows the banking system is awash with liquidity and comes amid rising inflationary pressures. As per the RBI’s sixth bi-monthly monetary policy statement, overall liquidity in the system remained in surplus in December 2019 and January 2020. Average daily net absorption under the liquidity adjustment facility (LAF) amounted to ₹2.61-lakh crore in December 2019. In January 2020, the average daily net absorption of surplus liquidity soared to ₹3.18-lakh crore. Under the Liquidity Management Framework, the instruments of liquidity management include fixed and variable rate repo/reverse repo auctions, outright open market operations (OMOs), forex swaps and other instruments as may be deployed from time to time to ensure that the system has adequate liquidity at all times. The framework also prescribes a 14-day term repo/reverse repo operation at a variable rate and conducted to coincide with the cash reserve ratio (CRR) maintenance cycle would be the main liquidity management tool for managing frictional liquidity requirements.

The main liquidity operation would be supported by fine-tuning operations, overnight and/or longer, to tide over any unanticipated liquidity changes during the reserve maintenance period.

In addition, the Reserve Bank will conduct, if needed, longer-term variable rate repo/reverse repo operations of more than 14 days.

Published on February 13, 2020
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