RBI infuses Rs 72,300 cr liquidity via VRR as surplus narrows
The Reserve Bank of India (RBI) on Wednesday infused Rs 72,300 crore transient liquidity through two Variable Rate Repo (VRR) auction into the banking system after surplus liquidity narrowed following advance tax payments.
The central bank injected Rs 50,016 crore through a two-day VRR auction at a cut-off rate of 5.26 per cent. It also infused another Rs 22,284 crore via a second two-day VRR auction. Variable rate repo auctions are used by the RBI to manage liquidity mismatches in the banking system. Currently, liquidity in the banking system is estimated to be in surplus of around Rs 23,881.21 crore as on June 16, which was lower compared to a surplus of around Rs 1.51 lakh crore as on June 15, according to the RBI’s data.
Experts attributed the narrowing of liquidity to outflows on account of advance tax payments. Further, they added that the central bank may conduct more VRR auctions in the coming days to support liquidity in the banking system.
“Considering the narrowing of surplus liquidity in the banking system and expectation of further outflows on account of goods and services tax payment, the central bank may conduct more variable rate repo auctions to support liquidity and keep overnight rates under check,” said V Ramachandra Reddy, head of treasury at The Karur Vysya Bank.
In the last few days, overnight rates have been trading above the RBI’s repo rate due to strain on the liquidity surplus, prompting the central bank’s intervention to infuse transient liquidity in the banking system. On Wednesday, weighted average call money rates were trading at 5.37 per cent, which was 0.12 per cent higher than the repo rate, and Treps was trading at 5.21 per cent.
