The Reserve Bank of India will conduct a seven-day variable rate reversal repo auction for an amount of Rs 2 lakh crore on Friday, it said in a release.
RBI’s Actions
Previous actions in recent weeks met with a lukewarm response, including those for a shorter tenure of three days. The three-day auction held on July 15 received bids worth Rs 57,450 crore against the notified amount of Rs 1 lakh crore.
Despite the VRRR auctions, the liquidity in the banking system remains high. On Tuesday, the liquidity surplus in the banking system was elevated at Rs 3.11 lakh crore.
Market participants have attributed the subdued response to upcoming tax outflows and a reluctance to leave money lying with the central bank for seven days. Dealers do not expect an encouraging response to Friday’s auction either despite the abundant liquidity in the system.
RBI Governor
In a recent interview with a news channel, RBI governor Sanjay Malhotra said the central bank wants to align the call rate with the repo rate and that the VRRR has helped. “Our effort will be to maintain it (call rate) as close as possible to the policy rate, which should also help us in the transmission.”
As a result of the auction, the call rate firmed up near the repo rate. On Thursday, the call rate rose to 5.40% before settling at 5.35%.
The auction will be held between 10.00 a.m. and 10.30 a.m. The reversal of the auction will happen on July 25, the RBI said.