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Rs 2 trillion outflows in sight, RBI's four-day VRR auction sails through

Banks expect more such auctions in June, given the high call and trep rates



Anjali Kumari Mumbai

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The Reserve Bank of India’s four-day variable rate repo auction witnessed firm demand from market participants amid expectations of outflows worth nearly Rs. 2-trillion in June because of advance tax payments, and goods and services tax payments, dealers said.

Against a notified amount of Rs. 75,000 crore, the RBI received a total bid of Rs. 75,695 crore.

“The RBI conducted the VRR auction because there is going to be heavy GST outflows in the next 2-3 days,” a dealer at a state-owned bank said. “There was active participation by banks because they would be needing funds.”

The central bank conducted the variable rate repo auction after a month. Last VRR auction was conducted on May 19.

Significant demand was also fuelled by elevated call rates and tri-party repo (Trep) rates in the market, dealers said.

The weighted average call rates have been trading above the repo rate, ranging between 6.54 per cent and 6.64 per cent for the past four trading sessions. Weighted average Trep rates have been trading above the repo rate in the range of 6.54-6.60 per cent for the past two trading sessions.

“The Reserve Bank should conduct more auctions given the high call rates and trep rates,” a dealer at another state-owned bank said. “We should expect more such auctions in June.”

Banks parked Rs. 85,000 crore with the central bank on Friday.

The RBI’s decision to withdraw Rs. 2,000 banknotes on May 19 triggered expectations of improved liquidity. Though Rs. 2,000 notes were not much in circulation, market participants expected an inflow of around Rs. 2.5 trillion through deposits after the central bank decided to withdraw these banknotes.

The central bank’s attempt to mop up the excess liquidity through a series of variable rate reverse repo (VRRR) auctions got a tepid response from banks as liquidity was expected to tighten due to tax outflows.

 “Banks have been cautious. There is still some amount of liquidity sitting there. When we say banks are cautious, let’s remember that about Rs. 1.5 trillion has been mopped up through VRRR operations,” said RBI Governor Shaktikanta Das during an interaction with the media, after the announcement of the monetary policy review on June 8.

Banks deployed funds much lower than the notified amount in the past four VRRR auctions. Banks parked Rs. 1.56 trillion in those auctions, against a cumulative notified amount of Rs. 4.5 trillion.


Topics : RBI GST

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First Published: Jun 19 2023 | 8:10 PM IST

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