RBI to conduct 3-day VRRR auction Tuesday to absorb ₹50,000 crore

The central bank's move follows rising liquidity in the system that has pulled overnight rates below the repo rate; WACR and tri-party repo rates remain under pressure

The Reserve Bank of India (RBI) on Monday announced a ₹50,000 crore Variable Rate Reverse Repo (VRRR) auction for a three-day tenor, to be conducted on Tuesday.

 

“Given overnight rates have again fallen as liquidity is coming back into the system, the auction was announced,” said the treasury head at a private bank. “The notified amount should be absorbed,” he added.

 

The overnight Weighted Average Call Rate (WACR) settled at 5.35 per cent, against the previous day’s close of 5.39 per cent, while the overnight tri-party repo rate settled at 5.26 per cent, compared to 5.32 per cent on Friday.

 

 

WACR is the operating target of monetary policy, which the central bank aims to keep close to the repo rate. 

 

The RBI’s VRRR operations are aimed at absorbing surplus liquidity from the system and anchoring short-term rates nearer the policy repo rate.

 

On Sunday, net liquidity in the banking system stood at a surplus of ₹2.48 trillion, according to the latest data from the RBI.

 

A liquidity surplus of around ₹3 trillion has kept the overnight WACR close to the Standing Deposit Facility (SDF) rate of 5.25 per cent and below the policy repo rate of 5.50 per cent during the month. Tri-party repo rates also dipped below the SDF rate, prompting the RBI to conduct two VRRR auctions last week.

 

“The RBI wants to keep overnight rates above the SDF and near the repo rate,” said a dealer at a state-owned bank. “The VRRR auctions will continue for now because government spending will kick in, which will weigh on overnight rates,” he added.

 

The RBI received bids worth ₹1.42 trillion against a notified amount of ₹1.25 trillion at the seven-day VRRR auction on Friday. The strong demand followed the reversal of ₹2 trillion that banks had parked with the RBI in the previous week. The central bank accepted the entire amount at a cut-off rate of 5.49 per cent.