RBI Hints Rs 50,000 Cr Variable Rate Repo Auction
The Reserve Bank of India (RBI) on Thursday announced conducting a 14-day variable rate repo auction worth Rs 50,000 crore on 19 May, marking the bank’s liquidity injection for the first time in more than two months.
Earlier RBI conducted a five-day variable rate repo auction on 24 March and a 14-day variable rate repo auction on 10 March.
Variable rate repo auction allows banks to borrow funds from the RBI. According to the analysts the central bank's latest repo announcement was likely in response to a recent sharp increase in overnight fund costs, despite surplus liquidity conditions in the banking system.
Abhishek Upadhyay, senior economist, at ICICI Securities Primary Dealership said RBI’s conservative move is due to overnight raised higher rates, even if the metric is considered, weighted average call rate (WACR). The average over the last three weeks will roughly be 18 basis points higher in comparison to the repo rate.
He stressed the statement that actual borrowing rates have been even higher. While the overall system’s liquidity stood at a surplus, overnight rates were higher because of the banking skew in system liquidity. Subsequently, RBI is just trying to act conservatively giving funds to entities that require that funding.
