Banks on Friday parked Rs 4.31 trillion of their surplus funds with the Reserve Bank of India (RBI) at a cut-off of 3.99 per cent, almost touching the repo rate, indicating the money market rates are not going to fall in a hurry even as the RBI goes easy on its liquidity absorption mode.
The central bank had surprised the bond market by announcing a Rs 5 trillion variable rate reverse repo (VRRR) auction, instead of an expected Rs 8 trillion auction, as the economy suffered dislocations due to the ongoing Omicron surge.
From this year, the central bank has moved to variable rate reverse repo auctions, instead of fixed rate auctions. This has meant that the reverse repo rate of 3.35 per cent is no longer very relevant. The auction cut-offs of variable rate reverse repo are also coming near the repo rate in line with the central bank’s plan to move towards a policy rate regime where the rate difference between liquidity absorption and infusion is narrowed to just 25 basis points (it is now at 65 bps).
The 10-year bond yields closed at 6.58 per cent, up by 2 basis points from its previous close.
Meanwhile, the rupee lost against the dollar and closed above 74 level. The Indian currency closed at 74.15 a dollar, from its previous close of 73.90.