RBI to conduct overnight VRR auction to infuse Rs 50,000 cr amid GST flows

RBI will conduct an overnight variable rate repo auction to infuse Rs 50,000 crore into the banking system, easing tightness from GST outflows and maturing VRRR amounts

The Reserve Bank of India (RBI) plans to conduct an overnight variable rate repo (VRR) auction to infuse Rs 50,000 crore into the banking system. Market participants said the move is aimed at easing liquidity tightness amid tax payments.

 

“They (RBI) want to avoid tightness amid GST outflows. The VRRR amount is maturing on Friday, while GST payments ended today (Wednesday), so they want to avoid a liquidity crunch for a day,” said Gaura Sen Gupta, chief economist, IDFC FIRST Bank.

 

Net liquidity in the banking system was in a surplus of Rs 2.98 trillion on Tuesday, according to the latest RBI data.

 

The RBI had conducted two variable rate repo auctions in July when overnight rates were trading near the marginal standing facility (MSF) rate. The weighted average call rate (WACR), the operating target of monetary policy, settled at 5.47 per cent on Wednesday, against 5.43 per cent in the previous session.

 

The RBI had received bids worth Rs 1.82 trillion against the notified amount of Rs 2 trillion at its eight-day variable rate reverse repo (VRRR) auction on August 14, as banks rolled over the maturing amount from earlier VRRR auctions conducted on August 8 and August 11. The central bank had accepted the bids at a cut-off rate of 5.49 per cent.

 

The RBI’s VRRR operations are intended to absorb surplus liquidity from the financial system and anchor short-term money market rates closer to the policy repo rate.

 

The MSF rate, set 25 basis points (bps) above the policy repo rate, is the ceiling of the liquidity adjustment facility corridor. The standing deposit facility (SDF), which is 25 bps below the repo rate, is the floor. The policy repo rate is currently at 5.5 per cent.