 "RBI to conduct overnight VRR auction worth Rs 2 trillion on Friday")
The Reserve Bank of India (RBI) will conduct overnight variable rate repo (VRR) auction worth Rs 2 trillion on Friday. Additionally, it will conduct 14-day VRR auction on the same day to infuse Rs 1.75 trillion worth liquidity into the banking system.
In a bid to address current and evolving liquidity conditions, the RBI had announced that it will conduct VRR auctions on all working days in Mumbai. In the first such auction, the notified amount was Rs 50,000 crore, which was subsequently raised to Rs 1.25 trillion in the following auctions.
The liquidity deficit stood at Rs 2.87 trillion on Wednesday, according to the latest data by the RBI.
The RBI conducted two overnight VRR auctions to address the current liquidity situation, with a total of Rs 1.25 trillion and Rs 50,000 crore notified amount, respectively. In the second auction, banks submitted bids amounting to Rs 20,668 crore. Notably, the demand in the first auction was significantly higher, with bids totalling Rs 1.69 trillion, surpassing the Rs 1.25 trillion notified amount.
“The second VRR auction was announced after high demand at the first auction,” said a dealer at another primary dealership. “We expect the demand at VRR auction to be high given the liquidity crunch in the system,” she added.
Meanwhile, the government bought back Rs 9,666 crore worth of government securities on Thursday, against the notified amount of Rs 20,000 crore. The RBI received Rs 23,000 crore worth of bids at the auction, however, the bids were at a higher price than the central bank was willing to pay, said market participants.
Also Read
“There is demand, but actually the money invested in the bonds is quite high,” said a dealer at a primary dealership. “Banks were bidding at high prices, which the RBI was not ready to pay,” he added.
The government had offered to buy back the 7.72 per cent 2025 bond maturing on May 25, the 5.22 per cent 2025 bond maturing on June 15, the 8.2 per cent 2025 bond maturing on September 24, the 5.15 per cent 2025 bond maturing on November 9, and the 7.59 per cent 2026 bond maturing on January 11.
By repurchasing its outstanding bonds from the market before they mature, the government reduces its liabilities and strengthens its fiscal position. The process involves using government funds to buy back these bonds, which are then typically retired, decreasing the total outstanding debt. This strategy allows the government to improve its debt profile by repurchasing higher-cost or shorter-term bonds.