Banking system liquidity surplus reaches ₹4.09 trillion amid govt spending

The surplus liquidity has kept the overnight weighted average call rate below the repo rate of 5.50%, and overnight tri-party repo rate below the standing deposit facility (SDF) rate of 5.25%

Despite the Reserve Bank of India’s (RBI) recent variable rate reverse repo (VRRR) auctions, net liquidity in the banking system stood at a surplus of ₹4.09 trillion on Sunday, the highest since July 3, on the back of government spending, according to the latest RBI data.

 

The surplus liquidity has kept the overnight weighted average call rate below the repo rate of 5.50 per cent, and overnight tri-party repo rate below the standing deposit facility (SDF) rate of 5.25 per cent.

 

The weighted average call rate stood at 5.37 per cent, and weighted average Treps rate stood at 5.22 per cent on Monday.

 

The RBI’s VRRR operations are aimed at absorbing surplus liquidity from the system and anchoring short-term rates closer to the policy repo rate. However, the persistent surplus liquidity suggests that more VRRR auctions may be needed to maintain liquidity at the central bank’s target of 1 per cent of net demand and time liabilities (NDTL).

 

“The liquidity improved on the back of government spending,” said the treasury head at a private bank. “We will see more VRRR auctions as the aim is to align overnight rates with the repo rate,” he added.

 

Meanwhile, the rupee erased all its early gains, slipping from an opening of 87.21 per dollar to a low of 87.70 per dollar before the RBI intervened to curb further depreciation.

 

The selling pressure was largely driven by demand from oil companies, foreign portfolio investors (FPIs), and importers, said dealers. Some dollar buying was also attributed to refunds from unallotted NSDL IPO subscriptions.

 

 

The rupee settled at 87.66 per dollar, against previous close of 87.55 per dollar.

 

FPIs have begun August with significant equity outflows. Meanwhile, trade tensions between India and the US have intensified following Washington’s imposition of 25 per cent tariffs. In response, India reaffirmed its stance on continuing oil imports from Russia, stating that such decisions would not be dictated by the US.

 

This escalation has added to the uncertainty faced by Indian exporters.

 

“The buying was mainly by oil companies, FPIs and importers, while some buying was due to refund of un-allotted NSDL IPO subscriptions. FPIs have started August with sizable equity sales and would have continued the same today. The trade tensions between India and the US have escalated after the imposition of 25 per cent tariffs and India saying that it will not be the US to determine from where it buys the oil and that we would continue to buy the oil from Russia. It has raised uncertainty for India companies reliant on exports,” said Anil Kumar Bhansali, head of treasury and executive director at Finrex Treasury Advisors LLP.