Banks on Friday bid for Rs 1.09 lakh crore at a cutoff rate of 6.31%, against the notified amount of Rs 50,000 crore, at a 56-day variable rate repo (VRR) auction conducted by the Reserve Bank of India.
Banks and primary dealerships were seen heavily bidding as the tenure of the auction gives participants a sufficient cover for outflows, such as advance tax payments, GST payments and excise and tax deducted at source (TDS) payments, scheduled for March.
“The maturity date of this VRR is April 4. So, outflows related to year end will be covered. Moreover, as government month-end spending is expected to remain subdued, it will help meet the demand for funds…” said an interbank call money market trader with a state-owned bank.
In January, the RBI announced measures like open market operation purchases, 56-day VRR and buy/sell swap to ease the prevailing tight liquidity conditions in the banking system. In addition, the RBI conducts a daily overnight VRR auction.
Liquidity in the banking system has been under stress in the last few weeks due to tax outflows, heavy intervention by the RBI in the forex market to sell dollars and less government spending.
RBI governor Sanjay Malhotra said in a post-policy press conference that the apex bank will infuse as much liquidity as required into the banking system, both in terms of overnight and durable liquidity.