RBI's VRR Auction Sees 2.8-Fold Bids
The Reserve Bank of India (RBI) saw bids totaling Rs 2.77 trillion against the specified amount of Rs 1 trillion at the seven-day variable rate repo (VRR) auction on Friday. The central bank approved bids at a 6.68 per cent cut-off rate, lower than the 6.75 per cent MSF (Marginal Standing Facility) rate.
MSF enables banks to access overnight liquidity in times of interbank cash shortages. The repo auction, conducted by the central bank, infuses liquidity into the banking system. Despite improved liquidity conditions, considerable bids from banks indicate that some are still experiencing cash constraints.
Liquidity conditions have generally eased in the initial week of this month. The banking system's liquidity deficit dropped to Rs 1.1 trillion from around Rs 2.5 trillion in December's final week. December witnessed a liquidity crunch, leading the RBI to conduct multiple VRR auctions. All these auctions, aiming to enhance banks' liquidity, received substantial bids from lenders.
In the VRR auction held on 29 December, the central bank received bids worth Rs 3 trillion against the set Rs 1.25 trillion. Similarly, the auction on 22 December saw robust bank response, garnering bids worth Rs 4.25 trillion against the Rs 1.75 trillion specified. Analysts anticipate further easing of liquidity in the upcoming weeks, buoyed by government expenditure.
