The Reserve Bank of India (RBI) on Monday announced that it will four Variable Rate Term Repo auctions in addition to regular auctions to provide liquidity support of Rs 1 lakh crore to the banks during March 2018. The central bank said that the auction is aimed to address the additional demand for liquidity and to provide flexibility in the banking system on account of increase in currency in circulation and advance tax payments by corporates.
Under its Liquidity Adjustment Facility (LAF) operations, the RBI uses Variable Rate Term Repo to infuse additional funds in banks when the liquidity is low and to absorb additional funds when the liquidity is high in the banking system. The RBI auctions Variable Rate Term Repo for different durations — three days, 14 days, and 28 days. Term Repos are available only when the RBI notifies about it.
Banks that need additional fund get it from the RBI by availing Variable Rate Term Repo against submission of securities. The RBI has announced four Variable Rate Term Repo auctions of Rs 25,000 crore each, and the duration of these Term Repo is between 24 days to 31 days.
“In order to address additional demand for liquidity and with a view to providing flexibility to the banking system in its liquidity management towards March-end, it is prepared to inject adequate additional liquidity using a combination of appropriate instruments, while continuing with its normal Liquidity Adjustment Facility (LAF) operations,” the RBI said in a statement.
The RBI last month said that the goal of RBI’s liquidity operations is not to manage directly the prices of any particular long-term asset market, but also indicated at liquidity infusion. On February 15, the central bank said that while the system liquidity is currently in a surplus mode, it is moving steadily towards neutrality.