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The weighted average overnight call rate (WACR) rose above the Reserve Bank of India’s (RBI’s) policy repo rate of 5.5 per cent on Tuesday for the first time in the current financial year amid Goods and Services Tax (GST) outflows.
WACR settled at 5.62 per cent, against the previous close of 5.48 per cent. The weighted average overnight TREPS (Triparty repo) rate settled at 5.69 per cent, against 5.51 per cent on Monday.
The banking system liquidity was in the surplus of ₹2.39 trillion on Monday, around 1 per cent of banks’ net demand and time liabilities (NDTL), latest data by the central bank showed.
The central bank has been conducting variable rate reverse repo auctions to suck out liquidity from the system. The WACR is the operating target of the monetary policy and the central bank would like it to align with the policy repo rate.
RBI had said it aims to maintain a liquidity surplus of 1 per cent of NDTL.
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Market participants said that with surplus liquidity currently around 1 per cent of net demand and time liabilities (NDTL), it diminishes the likelihood of additional VRRR auctions in the near term.
Dealers expect the RBI to resume VRRR operations in the first week of August, after a pick-up in government spending.
“The overnight money market rates are rising because of GST outflows,” said a dealer at a primary dealership.
“The liquidity is near 1 per cent of NDTL, that means no more VRRRs are required at the moment, they (RBI) might come back with VRRR at the start of the month, when government spending will kick in,” he added.
“If the RBI does come up with VRRR auction, the amount will be small, and it will be negative for the market,” said a dealer of another primary dealership.
The RBI received bids worth ₹2.07 trillion against the notified amount of ₹2 trillion at the seven-day variable rate reverse repo (VRRR) auction on Friday, as it coincided with the maturity of previous ₹2.07 trillion VRRR auctions.
Banks largely rolled over these funds into the new auction, said dealers.
The RBI has been conducting a series of VRRR auctions since the last week of June because a net surplus liquidity of above ₹3 trillion in the banking system had majorly kept the overnight weighted average call rate near the 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 for the past month.
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