By Christina Titus
The Reserve Bank of India’s (RBI) second variable reverse rate repo (VRRR) auction on Friday received strong response from the market, unlike the previous one. Market participants bid Rs 1.70 lakh crore at the auction, whereas RBI accepted Rs 1,00,010 crore. The cut-off rate was 5.47%, RBI said in the statement.
“As the liquidity in the system has gone up, the bids were high at the auction. Despite the huge liquidity surplus, RBI had not increased the quantum of the VRRR,” said Gopal Tripathi, head of treasury, Jana Small Finance Bank. Liquidity surplus of the banking system was Rs 4.04 lakh crore, highest since 2022. Banks parked Rs 3.27 lakh crore at the RBI’s Standing Deposit Facility window.
Later on Thursday, RBI said that it would conduct another seven-day VRRR of Rs 1 lakh crore. Market had previously priced in additional VRRR operations as liquidity remained huge in the banking system despite the last auction.
At VRR conducted on June 27, the central bank drained Rs 84,975 crore against the notified amount of Rs 1 lakh crore.
“In a situation of huge system liquidity, lack of significant outflows till next week and low overnight call rates, banks are interested in deploying the excess funds at VRRR where they get better rates,” said a money market trader with a private bank.
However, these auctions are unlikely to significantly impact money market rates soon, said traders. On Tuesday, the weighted average call rate closed at 5.29% and tri-party repo rate at 5.18%.
“I expect RBI to continue such operations till systemic liquidity remains at around 1% of NDTL (net demand and time liabilities) and overnight rate remained at or above the SDF rate,” said Tripathi.
