The Reserve Bank of India (RBI) has announced a series of three-day repos auction to suck out excess liquidity from the system and set a benchmark for money market rates.
The January 4 cut in cash reserve ratio (CRR) requirements has released Rs 2,137 crore. A further 0.5 percentage point cut on January 18 will deliver similar amounts into the system.
Money market dealers said the cut-off rate at the auction is likely to be between four and five per cent. Subsequently, rates in the call market are expected to move between five-six per cent.
The first auction is set for January 13, for which the date of payment is January 14, and the date of repurchase is January 17. The next tranche of repurchase will be made on the same day as the payment of the earlier one. This will make sure that the funds get recycled. The auction dates have been fixed as January 13, 16, 18, 22, 25 and 29 and the dates of repurchase are January 17, 20, 23, 27, 30 and February 3. Except for the January 22 and 30 auctions, which are four-day ones, the others are three-day repos.
The date of payment of the auctions are January 14, 17, 20, 23, 27 and 30. Money market dealers said there will be an outflow of Rs 300-400 crore on account of the repos auction. Volumes in government securities market are expected to drop as rates in the market move up slightly. Alongwith the repos announcement, the state government loan on January 20 is also expected to mop up over Rs 1500 crore from the banking system.
On November 4, RBI had declared a cut off rate of four per cent for the four-day repos auction. Subsequently the central bank set a rate of 5.48 per cent on the 14-day repos auction held on November 8.
In the November 4 auction the banks put in funds worth Rs 1,325 crore, whereas in the one held on November 8, Rs 300 crore was mopped up.
The earlier repos auctions were announced due to the 0.5 per centage point reduction in CRR on October 26 and November 9 respectively.
The repos auction will be open to parties holding SGL account and current account with the RBI at Mumbai.
