 "RBI receives bids 2.7 times against notified amount at 7-day VRR auction")
Against the notified amount of Rs 1 trillion, the Reserve Bank of India (RBI) received bids worth Rs 2.7 trillion at the seven-day Variable Rate Repo (VRR) auction.
Banks borrowed the amount at a weighted average rate of 6.63 per cent in the auction conducted after six months. The last time the central bank conducted a VRR auction was on June 19.
The demand was also fueled by elevated call and tri-party repo (Trep) rates in the market, dealers said.
“The banks have been borrowing money from the MSF (marginal standing facility) at 6.75 per cent, whereas at the auction we received the money at 6.63 per cent, which is a spread of 12 basis points, that’s why there was an overwhelming response from banks for the auction,” a dealer at a state-owned bank said.
However, market participants said the VRR auction would not help the tight liquidity situation much given outflows due to advance tax collection and goods and services tax (GST) payment. Around Rs 2 trillion outflows are expected via advanced tax payments starting Friday, market participants said. Additionally, there will be Rs 1.6-Rs 1.7 trillion worth of outflows through GST payments.
“Total outflow will be around Rs 4 trillion in December,” a dealer at another state-owned bank said. “The liquidity will remain in deficit in December, also some part of January,” he said.
Also Read
Bankers have been asking the RBI to conduct a VRR operation as the liquidity deficit continued to widen, while bank borrowing from the marginal standing facility (MSF) hit new records, market participants said.
The liquidity has remained largely in deficit in the current quarter. The RBI infused Rs 44,284 crore on Thursday. The banking system liquidity widened to a near five-year high on November 21 on the back of monthly GST payments. The central bank had infused Rs 1.74 trillion on that day.
The RBI has been conducting variable rate reverse repo auctions (VRRR) for the past six months to withdraw excess liquidity from the system. However, banks remained reluctant to participate in the VRRR auctions given the tight liquidity.