The Reserve Bank of India (RBI) on August 24 said it will conduct a 14-day variable rate reverse repo (VRRR) auction for a notified of amount of Rs 1 lakh crore on August 25.
“On a review of the current and evolving liquidity conditions, it has been decided to conduct a Variable Rate Reverse Repo auction on August 25, 2023,” the RBI said in a release.
The auction will take place between 10:30 am and 11:00 am, and the reversal of these funds will take place on September 8.
Usually, the central bank conducts VRRR auction to remove excess surplus liquidity from the banking system.
This was announced despite the liquidity in the banking system is deficit of around Rs 23,111.43 crore, but on the other hand there is reversal of 14-day VRRR which the central bank conducted on August 11.
This reversal will bring back Rs 34,139 crore in to the banking system.
The announced auction for August 25 is the second VRRR auction the central bank announced in the current month.
Prior to this, the central bank had conducted various VRRR auction to remove excess surplus liquidity from the banking system, which did not yielded good response from the banks.
After this, in August monetary policy, the RBI announced Incremental Cash Reserve Ratio (I-CRR) with an aim to manage the excess surplus liquidity in the economy.
The central bank said that with effect from the fortnight beginning August 12, scheduled banks will have to maintain an I-CRR of 10 percent of the increase in their net demand and time liabilities (NDTL) between May 19 and July 28.
This move by the central bank along with outflows on account of goods and services tax, tightened liquidity conditions in the banking system.
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