Overnight money market rates near policy repo rate post RBI's VRRR auctions

Overnight money market rates climb following the RBI's VRRR auction and GST outflows, with WACR approaching the policy repo rate

Overnight money market rates climbed on Monday following the Reserve Bank of India's (RBI) seven-day Variable Rate Reverse Repo (VRRR) auction conducted on Friday. Additionally, banks turned to the Tri-Party Repo (TREPS) market to manage their short-term liquidity needs due to GST outflows, estimated at around ₹1.2 trillion, which further pushed up overnight TREPS rates, said dealers.

 

The weighted average call rate (WACR), which is the operating target of the monetary policy, inched closer to the policy repo rate of 5.5 per cent as it settled at 5.48 per cent, compared to the previous close of 5.35 per cent. The weighted average overnight TREPS rate settled at 5.51 per cent, up from 5.31 per cent on Friday.

 

“Banks were borrowing from TREPS to meet GST outflow requirements,” said a dealer at a state-owned bank. “Funds that matured were subsequently parked in the VRRR, and the excess CRR maintained earlier was also utilised in Friday’s auction,” he added. 

 

The RBI received bids worth ₹2.07 trillion against the notified amount of ₹2 trillion at the seven-day VRRR auction on Friday, coinciding with the maturity of the previous ₹2.07 trillion VRRR auctions. Banks largely rolled over these funds into the new auction, said dealers.

 

The RBI has been conducting a series of VRRR auctions since the last week of June because a net surplus liquidity of over ₹3 trillion in the banking system had largely kept the overnight weighted average call rate near the SDF rate of 5.25 per cent and below the repo rate of 5.50 per cent, with TREPS rates also slipping below the SDF.

 

The net liquidity in the banking system was in a surplus of ₹3.04 trillion on Sunday, according to the latest data from the RBI.

 

“The RBI is expected to continue conducting the VRRR auction; the tenure and quantum will be decided according to the liquidity conditions and overnight rates,” said the treasury head at a private bank.