RBI skips 14-day main liquidity operation for third straight fortnight

The Reserve Bank of India has decided not to conduct the 14-day main operation under the liquidity management framework scheduled for Friday, it said in a statement on Thursday.

 

The decision was made following "a review of the current and evolving liquidity conditions" marking the third consecutive fortnight that the central bank has skipped the main 14-day operation.

 

Market participants had expected the RBI to conduct a 14-day variable rate repo auction on Friday on account of the upcoming tax outflows which are seen sucking out rupee funds from the banking system.

 

However, there are inflows of 257 billion rupees expected through government bond buyback, with another 800 billion rupees on account of bond maturities on Friday.

 

"Since we have inflows tomorrow, advance tax needs could be managed, but there could be some tightness around GST (Goods and Service tax) outflows. If government spending does not happen next week, we do not rule out smaller tenor repo," a trader with a private bank said.

 

Advance tax payments are due from June 13 to June 16, while outflows for goods and service taxes are due around June 20.

Traders estimate aggregate outflows of around 3 trillion rupees to 3.50 trillion rupees.

 

Earlier in the week the RBI announced that it will stop conducting daily repos, which it had started in the middle of January.

"There could be some uptick in overnight rates towards the end of next week, but it may not touch the repo rate," another trader with a private bank said.

 

As of June 11, the banking system liquidity surplus stood at around 2.6 trillion rupees.