RBI to hold ₹2 trillion 7-day VRRR auction to absorb surplus liquidity

RBI to conduct seven-day Variable Rate Reverse Repo auction on Friday to absorb Rs 2 trillion as banking system liquidity remains in surplus of over Rs 3 trillion

The Reserve Bank of India (RBI) received bids worth ₹2.07 trillion against a notified amount of ₹2 trillion in the seven-day Variable Rate Reverse Repo (VRRR) auction, which coincided with the maturity of the previous ₹2.07 trillion VRRR auction.

 

Banks largely rolled over these funds into the new auction, dealers said. However, with goods and services tax (GST) outflows estimated at ₹1.2 trillion, banks tapped the Tri-Party Repo (TREPS) market to meet short-term liquidity needs, which pushed up overnight TREPS rates.

 

The RBI had conducted a seven-day VRRR auction for ₹2.5 trillion, receiving bids worth ₹1.5 trillion, which was scheduled to mature on Friday. In its three-day VRRR auction held on Tuesday, the RBI received bids of ₹57,450 crore against a notified amount of ₹1 trillion.

 

 

“The amount that matured today (Friday) was rolled over,” said a dealer at a state-owned bank. “For GST outflows, banks borrowed from the TREPS market,” he added.

 

According to market participants, banks were reluctant to park larger amounts in earlier auctions due to the fortnightly reporting period at the end of the current week. Uncertainty over the quantum and tenor of upcoming VRRR auctions further dampened participation.

 

The overnight TREPS rate settled at 5.31 per cent, slightly higher than the previous day’s 5.28 per cent, while the overnight Weighted Average Call Rate (WACR) remained unchanged at 5.35 per cent.

 

WACR is the operating target of the monetary policy, which the central bank would like to be closer to the repo rate.

 

“Banks maintained an excess cash reserve ratio (CRR) this week, and the maturing amount was rolled over,” said another dealer at a state-owned bank.

 

The RBI conducts VRRR operations to absorb surplus liquidity and align short-term rates with the policy repo rate. Net liquidity in the banking system stood at a surplus of ₹3.08 trillion on Thursday, according to the latest RBI data.

 

Since the last week of June, the RBI has been holding a series of VRRR auctions as liquidity surpluses above ₹3 trillion have kept the overnight WACR 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.