RBI conducts two-day VRRR as liquidity surplus nears Rs 1 trillion

The Reserve Bank of India conducted a two-day variable rate reverse repo (VRRR) auction on Tuesday as the liquidity surplus in the banking system neared Rs 1 trillion.

The liquidity in the banking system was in a surplus of Rs 98,920 crore on Monday, according to the latest data by the central bank. Consequently, the weighted average overnight money market rates fell to 6.34 per cent on Tuesday, against 6.42 per cent on Monday.

The weighted average overnight call rate fell below the repo rate to 6.48 per cent, against 6.51 per cent on Monday. The repo rate currently stands at 6.50 per cent.

“Banks were parking funds in the SDF, and the call rate had fallen below the repo rate, which is the reason why the RBI came up with the auction,” said a dealer at a state-owned bank. “They have said numerous times that they want to keep the overnight rates near the repo rate,” he added.

Banks parked Rs 32,576 crore, against the notified amount of Rs 50,000 crore at a weighted average rate of 6.49 per cent at the auction.

Market participants see the liquidity to prevail in a surplus mode in the current month.

“There is ample liquidity in the system; it should remain in the surplus at least in the current month,” said a money market dealer at a state-owned bank. “There might be some crunch because of the election,” he added.

The liquidity has largely remained in surplus in April, as compared to the previous months in the current calendar year.