RBI receives ₹31,025 cr bids at VRR auction against ₹50,000 cr notified

RBI's overnight VRR auction received Rs 31,025 crore bids against Rs 50,000 crore notified as surplus liquidity stayed high despite upcoming tax outflows

The Reserve Bank of India (RBI) received bids worth ₹31,025 crore at the overnight variable rate repo (VRR) auction on Thursday against the notified amount of ₹50,000 crore, which the experts said was on expected lines.

 

Market participants said that the RBI’s decision to conduct VRR auction was to avoid liquidity tightness amid tax payments.

 

The net liquidity in the banking system was in a surplus of ₹2.65 trillion on Wednesday, according to the latest data by the RBI.

 

“The bidding was along the expected lines. The GST outflow is expected to be between ₹1 trillion - ₹1.25 trillion. The RBI must have thought the overnight rate might go beyond repo rate (5.50 per cent), so it was a fine tuning operation,” said the treasury head at a private bank. 

 

The RBI had conducted two variable rate repo auctions in July when overnight rates were trading near the MSF rate. The weighted average call rate (WACR), the operating target of monetary policy, settled at 5.53 per cent on Thursday, against the previous close of 5.47 per cent.

 

Market participants said that the RBI will continue with VRRR auctions as system liquidity remains in a net surplus of more than ₹2.5 trillion.

 

“Even after the outflows, the liquidity is more than 2.5 trillion surplus, so the variable rate reverse repo (VRRR) auctions will continue,” said a dealer at a state-owned bank.

 

The RBI had received bids worth ₹1.82 trillion against the notified amount of ₹2 trillion at its eight day VRRR auctions on August 14, as the banks rolled over the maturing amount of previous VRRR auctions which were conducted on August 8 and August 11. The central bank had accepted the amount at a cut-off rate of 5.49 per cent.

 

The RBI’s VRRR operations are intended to absorb surplus liquidity from the financial system and anchor short-term money market rates closer to the policy repo rate.

 

The MSF rate, set 25 basis points (bps) above the policy repo rate, is the ceiling of the liquidity adjustment facility corridor. The SDF, which is 25 bps below the repo rate, is the floor. The policy repo rate is currently at 5.5 per cent.