The Reserve Bank of India (RBI) on Wednesday infused ₹72,300 crore of transient liquidity into the banking system through two Variable Rate Repo (VRR) auctions after surplus liquidity narrowed sharply following advance tax payments.
The central bank injected ₹50,016 crore through a two-day VRR auction at a cut-off rate of 5.26%. It also infused another ₹22,284 crore via a second two-day VRR auction.
Variable rate repo auctions are used by the RBI to manage short-term liquidity mismatches in the banking system.
Liquidity in the banking system is currently estimated to be in surplus of ₹23,881.21 crore as of June 16, significantly lower than the surplus of around ₹1.51 lakh crore recorded on June 15, according to RBI data.
Experts attributed the sharp decline in surplus liquidity to advance tax outflows. They also expect the central bank to conduct additional VRR auctions in the coming days to maintain adequate liquidity conditions.
“Considering the narrowing of surplus liquidity in the banking system and expectation of further outflows on account of goods and services tax payment, the central bank may conduct more variable rate repo auctions to support liquidity and keep overnight rates under check,” said V Ramachandra Reddy, Head of Treasury at The Karur Vysya Bank.
In recent days, overnight money market rates have traded above the RBI’s repo rate as surplus liquidity came under pressure, prompting the central bank to inject temporary funds into the system.
On Wednesday, the weighted average call money rate was trading at 5.37%, around 12 basis points above the repo rate, while TREPS was trading at 5.21%.