RBI to hold 3-day VRRR auction Tuesday to absorb ₹1 trillion liquidity

The Reserve Bank of India (RBI) on Monday announced that it will conduct a ₹1 trillion variable rate reverse repo (VRRR) auction on Tuesday for a three-day tenor. 

 

“Given Monday’s overnight rates, the auction was expected,” the treasury head at a private bank said. “Demand at Friday’s auction was also subdued. The RBI likely wants to align the VRRR maturities to avoid overlapping with GST outflows, which is why this one is for three days,” he added.

 

On Monday, the overnight weighted average call rate (WACR) settled at 5.31 per cent, against the previous day’s close of 5.45 per cent, while overnight tri-party repo rate (TREPS) settled at 5.19 per cent, against 5.30 per cent on Friday. WACR is the operating target of the monetary policy, which the RBI would like to be closer to the repo rate. 

 

A net surplus liquidity of around ₹3 trillion in the banking system has kept the overnight weighted average call rate near the standing deposit facility (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.

 

On Sunday, the net liquidity in the banking system was in a surplus of ₹2.92 trillion, according to the RBI.

 

“Given that it’s short term, the demand will be there. The RBI was looking to absorb ₹2.5 trillion on Friday, and ₹1.5 trillion was subscribed — rest, they want to absorb with short term because the surplus is still around ₹3 trillion,” a dealer at a state-owned bank said. 

 

The RBI’s seven-day VRRR auction on Friday received tepid demand from banks as the auction amount exceeded the market expectation of ₹2 trillion, and the bidding amount fell short of the notified amount. The central bank received bids worth ₹1.51 trillion at the auction, against the notified amount of ₹2.5 trillion. The central bank accepted the entire amount at a cut-off rate of 5.49 per cent.