RBI conducts two VRR auctions as liquidity surplus dips below ₹1 trillion

The central bank held two variable rate repo auctions after banking system liquidity surplus dropped below Rs 1 trillion, while the 10-year bond yield rose 3 basis points

The Reserve Bank of India (RBI) conducted two Variable Rate Repo (VRR) auctions on Friday, as the banking system's liquidity surplus fell below the ₹1 trillion mark to ₹83,196 crore on Thursday, according to the latest data from the RBI.

 

In the first auction, held for a notified amount of ₹75,000 crore with a three-day tenor, the RBI received bids worth ₹1,09,823 crore, nearly 46 per cent higher than the notified amount. The central bank allotted ₹75,003 crore at a cut-off and weighted average rate of 5.26 per cent, with a partial allotment of 63 per cent of bids received at the cut-off rate.

 

 

Following the strong response to the first auction, the RBI conducted a second three-day VRR auction for a notified amount of ₹50,000 crore. However, the central bank received bids worth ₹816 crore. The bid amount was allotted at a cut-off and weighted average rate of 5.26 per cent.

 

"The RBI conducted the second auction after the bids exceeded the notified amount in the first auction," said a money market dealer at a state-owned bank. "The liquidity fell below ₹1 trillion, hence the strong demand," the person added. 

The central bank plans to infuse ₹1.25 trillion via a 7-day VRR auction on Monday.

 

On the other hand, the yield on the benchmark 10-year government bond hardened by 3 basis points to settle at 6.78 per cent, tracking the rise in crude oil prices and weaker-than-expected demand at the weekly government securities auction, dealers said.

 

Foreign investor Fairfax, however, bought around ₹5,000 crore worth of the three-year government security at the auction, market participants said.

 

The yield on the three-year government bond settled at 6.24 per cent, against the previous close of 6.21 per cent.

 

"The market tracked crude oil, and then the auction cut-off was higher than market expectations, which led to yields inching up," said a dealer at a primary dealership. "Given the global uncertainty, people did not want to carry their positions through the weekend," the person added.