The Reserve Bank of India (RBI) is likely to conduct more variable rate repo (VRR) operations to ease tightening liquidity in the banking system that has led to a surge in interbank call rates, bankers said ahead of the three-day monetary policy meeting scheduled to start on Wednesday.
Liquidity in the banking system is tightening due to heavy outflow of funds for tax payments, increased credit demand and RBI selling dollars to stem the rupee fall, they said.
On September 22, the RBI conducted an overnight VRR operation worth Rs 50,000 crore, which saw bids of Rs 94,267 crore. The cutoff rate was at 5.58 percent. The repo rate, or the rate at which RBI lends to banks, is at present 5.40 percent.
Under VRR operations, banks bid for funds from the RBI at a rate higher than the repo rate, while the call money rate is an overnight rate at which banks lend to each other to meet cash requirements.