RBI conducts second variable rate repo auction worth Rs 50,000 crore

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The Reserve Bank of India has carried out a variable rate repo operation, instead of opting to undertake its regular variable rate reverse repo operations (VRRR), after a more-than-expected collection of Goods and Service Tax (GST) reined in the liquidity flush in the market.

A statement from the RBI noted that the hardening of overnight money market rates and the amounts under the fixed-rate reverse repo of the liquidity adjustment facility (LAF) were also reflective of this.

The VRRR is usually undertaken to reduce the money flow by taking out existing cash present in the system. While the RBI proposed lending around Rs 50,000 crore to the banking ecosystem for a day on January 20, the cut-off rate was set at 4.06 percent, along with the weighted average rate of 4.10 percent. Both of these inch higher than the repo rate of 4 percent. The counter-bids received by the RBI amounted to Rs 65,700.

Till December 31, the central bank had planned to suck out almost Rs 7.5 trillion of liquidity through a 14-day VRRR auction. But the banks offered only Rs 2.67 trillion in these auctions. On a reverse repo auction on January 14, where the RBI wanted to compensate the shortfall of about Rs 5 trillion, the banks yet again only offered Rs 4.31 trillion.

The rebalancing “has proceeded on a pre-announced glidepath and has evolved satisfactorily”, the statement said. It added that the bank will “continue to rebalance the liquidity conditions in a non-disruptive manner while maintaining adequate liquidity to meet the needs of the productive sectors of the economy”.