variable rate repo: RBI to hold 14-day variable rate repo auction for Rs 1 lakh crore on Friday

variable rate repo: RBI to hold 14-day variable rate repo auction for Rs 1 lakh crore on Friday


The Reserve Bank of India (RBI) will conduct a 14-day variable rate repo (VRR) auction on March 10 to inject up to Rs 1 lakh crore ($12.19 billion) into the banking system, it said in a release on Thursday.

This will be only the second VRR auction conducted by the RBI since February 2020. The previous VRR auction was conducted on Feb. 10 for Rs 50,000 crore.

The liquidity deficit in the banking system had widened to over Rs 70,000 crore in February, with the daily average liquidity also slipping into deficit on a monthly basis for the first time since May 2019.

Although liquidity, on a daily basis, was a surplus of around Rs 25,000 crore on March 8, it is expected to dip into a deficit in the coming weeks due to payments for goods and services tax (GST) among others.

“We may have close to Rs 2.5 to 3 lakh crore of outflow towards advance tax and GST in the next fortnight, which may have compelled the RBI to double the quantum of VRR compared to the previous auction,” a trader with a private bank said.

The sharp squeeze in liquidity has pushed up money market rates, with the 364-day treasury bills selling at yields above the 10-year paper’s on Wednesday.

The central bank has said it would continue to resort to variable rate repos and reverse repos as and when necessary to help the market tide over temporary mismatches in the liquidity conditions.



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