The Reserve Bank of India on Monday absorbed Rs 2,10,192 crore of liquidity from the banking system through two overnight Variable Rate Reverse Repo (VRRR) auctions, as it continues to drain the large surplus sloshing around the system.
Two auctions, two very different responses
In the first auction, the central bank received bids worth Rs 2,10,688 crore against a notified amount of Rs 2 lakh crore, and accepted Rs 2,00,050 crore at a weighted average rate of 5.24 per cent.
The response in the second auction was far more tepid. Banks placed bids of only Rs 10,142 crore against a notified amount of Rs 50,000 crore, and the central bank accepted the entire bid amount.
Over the last two months, the RBI has run a series of VRRR auctions to absorb excess surplus liquidity and keep overnight money market rates aligned with the repo rate.
Why the system is flush with cash
Liquidity in the banking system is estimated to be in a surplus of around Rs 5.16 lakh crore as on October 4, according to RBI data. The surplus has been driven by heavy mobilisation of FCNR (B) deposits by banks, with the foreign currency inflows and subsequent swaps with the RBI providing rupee liquidity. Month-end government expenditure, including payments towards salaries and pensions, has also added to the surplus.
In a sign that the central bank is stepping up its operations, the RBI has also announced a larger overnight VRRR auction of Rs 2.50 lakh crore for October 6, a day ahead of the monetary policy committee's call on interest rates. Market participants see the move as preparation for smooth transmission should the RBI begin raising the repo rate from October 7.
Sources:
- RBI absorbs Rs 2.10 lakh crore via two overnight VRRR auctions — The Hindu BusinessLine
- RBI Absorbs Rs 2.10 Lakh Crore Liquidity Amid Surplus — ET BFSI
Two auctions, two very different responses
In the first auction, the central bank received bids worth Rs 2,10,688 crore against a notified amount of Rs 2 lakh crore, and accepted Rs 2,00,050 crore at a weighted average rate of 5.24 per cent.
The response in the second auction was far more tepid. Banks placed bids of only Rs 10,142 crore against a notified amount of Rs 50,000 crore, and the central bank accepted the entire bid amount.
Over the last two months, the RBI has run a series of VRRR auctions to absorb excess surplus liquidity and keep overnight money market rates aligned with the repo rate.
Why the system is flush with cash
Liquidity in the banking system is estimated to be in a surplus of around Rs 5.16 lakh crore as on October 4, according to RBI data. The surplus has been driven by heavy mobilisation of FCNR (B) deposits by banks, with the foreign currency inflows and subsequent swaps with the RBI providing rupee liquidity. Month-end government expenditure, including payments towards salaries and pensions, has also added to the surplus.
In a sign that the central bank is stepping up its operations, the RBI has also announced a larger overnight VRRR auction of Rs 2.50 lakh crore for October 6, a day ahead of the monetary policy committee's call on interest rates. Market participants see the move as preparation for smooth transmission should the RBI begin raising the repo rate from October 7.
Sources:
- RBI absorbs Rs 2.10 lakh crore via two overnight VRRR auctions — The Hindu BusinessLine
- RBI Absorbs Rs 2.10 Lakh Crore Liquidity Amid Surplus — ET BFSI
