At the seven-day variable rate repo (VRR) auction conducted on Tuesday, the central bank saw tepid demand, as large banks did not participate in the auction amid surplus liquidity conditions and relatively better returns in the tri-party repo market.
The central bank received bids worth ₹48,014 crore, against the notified amount of ₹1.5 trillion.
VRR auctions allow banks to borrow funds from the RBI against government securities at market-determined rates, helping the central bank manage short-term liquidity in the financial system.
Surplus liquidity in the banking system fell below ₹1 trillion primarily due to advance tax outflows, which are estimated to drain around ₹2 trillion from the banking system, with additional pressure expected from GST payments that typically withdraw another ₹1 trillion.
The net liquidity of the banking system was in a surplus of ₹81,963 crore on Tuesday, latest data by the RBI showed.
Experts said that while foreign exchange intervention by the Reserve Bank of India is also at play, its impact on liquidity remains contained as the central bank is actively sterilising these operations through bond purchases and USD/INR swaps. As a result, the current liquidity deficit is largely being driven by tax-related outflows rather than foreign exchange actions.
The banking system liquidity is likely to slip into a temporary deficit for a few days before government spending towards the end of the month restores liquidity. Although such transient tightness would typically warrant short-term measures such as variable rate repos, market participants expect the RBI to ensure system liquidity remains adequate, around 1 per cent of net demand and time liabilities, to retain flexibility for currency intervention amid heightened external uncertainties.
Source link
#RBI #infuse #crore #threeday #VRR #auction #liquidity #tightens
