RBI Injects Rs 1 Lakh Crore In 7-Day VRR Auction To Address Liquidity Outflows
The Reserve Bank of India (RBI) conducted a 7-day variable rate repo (VRR) auction on Friday to inject liquidity up to Rs 1 lakh crore into the banking system, considering outflows due to advance tax collection and goods and services tax (GST) payments.
The cut-off rate derived for the operations is 6.61 per cent, while bids received were worth Rs 2.73 lakh crore.
The VRR auction was conducted on e-Kuber by the central bank.
“The 14-day VRRR auction conducted on 1 December 2023, and subscribed for Rs 22,468 crore is maturing and allowed to be reversed on 15 December , 2023. Furthermore, in view of likely outflows from the banking system on account of advance tax and GST payments, it has been decided to conduct a 7-day Variable Rate Repo auction,” RBI had said on Thursday.
A state-owned bank dealer said that there was demand from banks for VRR because the call and Treasury Bills Repurchase (TREPS) rates are above the MSF rate and liquidity is tight.
Bankers have also been asking the central bank to conduct variable repo rate operations since the liquidity deficit in the banking system continued to widen, while banks borrowing from the marginal standing facility (MSF) had hit new record highs, market participants said.
The weighted average call rate settled at 6.76 per cent on Thursday. The MSF rate is currently fixed at 6.75 per cent.
The liquidity in the economy has been largely in deficit mode in the current quarter. The RBI infused Rs 38,774 crore on Wednesday.
The banking system liquidity widened to a near five-year high on November 21 on the back of monthly goods and services tax payments.
The central bank had infused Rs 1.74 lakh crore on that day. The RBI has been conducting variable rate reverse repo (VRRR) auctions for the past six months to withdraw excessive liquidity from the system. However, banks remained reluctant to participate in the VRRR auctions given the tight liquidity.
