Comments
The Reserve Bank of India (RBI), on Friday, said it will conduct four variable reverse repo rate (VRRR) auctions in the fortnight beginning August 13 till September 24 to absorb surplus liquidity from the banking system.
The quantum of surplus liquidity with the banking system as on August 4 was ₹8.50-lakh crore.
The central bank will conduct fortnightly VRRR auctions of ₹2.5-lakh crore on August 13; ₹3.0-lakh crore on August 27; ₹3.5-lakh crore on September 9; and ₹4.0-lakh crore on September 24.
RBI Governor Shaktikanta Das underscored that these enhanced VRRR auctions should not be misread as a reversal of the accommodative policy stance, as the amount absorbed under the fixed rate reverse repo is expected to remain more than ₹4.0-lakh crore at September-end 2021. The amount accepted under the VRRR window forms part of system liquidity. Das observed that markets have adapted and even welcomed the VRRR, in view of the higher remuneration it offers relative to the fixed rate overnight reverse repo.
“Fears that the recommencement of the VRRR tantamounts to liquidity tightening have been allayed. We have seen higher appetite for VRRR in terms of the bid-cover ratio in the auctions,” he said.
The central bank plans to conduct two more auctions of ₹25,000 crore each on August 12 and August 26, under the Government Security Acquisition Programme (G-SAP) 2.0.
Das said it is necessary to have active trading in all segments of the yield curve for its orderly evolution.
The RBI’s recent G-SAP auctions that have focussed on securities across the maturity spectrum are intended to ensure that all segments of the yield curve remain liquid, he added.
Furthermore, the central bank’s options are always open to include both off-the-run and on-the-run securities in the G-SAP auctions and Operation Twist.
Das expects the secondary market volumes to pick up and market participants to take positions that lead to two-way movements in yields.
GST compensation
The Governor said the decision of the government to accommodate the GST compensation payment to States for the first half of the year within the existing cash balances should assuage market concerns on the size of government’s borrowing programme this year.
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.