RBI Variable Rate Repo Auction Latest Update: The move to hold Variable Rate Repo Auction comes as the liquidity deficit in the banking system has gone up to over Rs 70,000 crore in February 2023.
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Mumbai: The Reserve Bank of India (RBI) will hold a 14-day variable rate repo (VRR) auction on Friday to inject up to Rs 1 lakh crore into the banking system, the central bank said in a statement. Notably, this is the second VRR auction conducted by the RBI since February 2020. The earlier VRR auction was conducted on February 10 for Rs 50,000 crore. Usually, the VRR is undertaken to withdraw excess liquidity from the system.
The development comes as the liquidity deficit in the banking system has gone up to over Rs 70,000 crore in February and the daily average liquidity is also slipping into deficit on a monthly basis for the first time since May 2019.
The liquidity was a surplus of around Rs 25,000 crore on March 8, and it is expected to dip into a deficit in the coming weeks due to payments for goods and services tax (GST) among others.
The continuous decrease in the liquidity has pushed up money market rates, with the 364-day treasury bills selling at yields above the 10-year paper’s on Wednesday.
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In the statement, the RBI 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.
RBI’s VRR Auction: Check Operational Guidelines
- The VRR auction will be conducted on CBS (e-Kuber) platform.
- Minimum bid amount for the auction would be Rs 1 Crore and the allotment would be in multiples of Rs 1 Crore.
- The RBI said the banks would be required to place their bids in percentage terms up to two decimal places.
- However, the successful bids will get accepted at their respective bid rates.
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