By Christina Titus
The Reserve Bank of India (RBI) will conduct a three-day VRRR– variable reverse rate repo—auction for an amount of Rs one lakh crore on Tuesday. The last auction, for 7 days saw a relatively muted response at Rs 1.52 lakh crore against the notified amount of Rs 2.5 lakh crore. The central bank accepted all the bids at a cut-off rate of 5.49%.
The liquidity surplus in the banking system came down to Rs 2.94 lakh crore on July 13 from Rs 4.25 lakh crore on July 4. On Monday, the weighted average call rate stood at 5.31%.
Meanwhile, although there has been a slight increase in banks’ cash position with the Standing Deposit Facility (SDF), at Rs 1.32 lakh crore on July 13, the amount is nonetheless smaller than the average quantum of Rs 1.42 lakh crore parked since July 9. Banks earn an interest of 5.25% on funds parked with the SDF, which is 25 basis lower than repo rate of 5.5%.The quantum of funds that banks placed in the SDF had fallen to a two-month low of Rs 1.25 lakh crore on July 10.
“Currently Rs 1.5 lakh crore is locked up in the VRRR, which is why the amounts in the SDF remain low. “Also, some amount is being shifted to the government securities market,” said a money market dealer at a private sector bank.
Market participants are of the view that RBI will continue with such operations to suck out excess liquidity. The central bank’s objective is to maintain the surplus liquidity in the system of around 1% of the net demand and time liabilities (NDTL). With some funds expected to move out on account of tax payments, the liquidity surplus could fall.