RBI plans to drain ₹5 trillion via 26-day liquidity mop-up auction | Finance News

The Reserve Bank of India plans to conduct a 26-day variable rate reverse repo (VRRR) auction for Rs 5 trillion on Friday to absorb surplus liquidity from the banking system. The funds are scheduled to be reversed on October 7.

 

Banks will also have the option to seek premature reversal of the funds placed in the auction.

 

At its 30-day VRRR auction for a notified amount of Rs 7 trillion on Monday, the central bank received bids worth Rs 2.59 trillion as some banks were unable to participate in the auction. Market participants had expected bids of up to Rs 5 trillion, making the actual response well short of expectations.

  

The central bank followed this up with a Rs 5 trillion overnight VRRR auction, where bids were stronger at Rs 3.53 trillion against the notified amount.

 

Net liquidity in the banking system was in a surplus of Rs 10.49 trillion on Wednesday, the latest data from the RBI showed. The overnight weighted average call rate (WACR) — which is the operating target of monetary policy — was trading below the Standing Deposit Facility (SDF) rate and settled at 4.98 per cent, against the previous close of 4.99 per cent on Wednesday.

 

“This long-term VRRR was expected because the first one did not pan out as expected,” said a dealer at a state-owned bank. “The demand is expected to be good,” the person added.

 

Meanwhile, the rupee weakened for a third consecutive session on Thursday to settle at 95.44 per dollar, against the previous close of 95.11 per dollar.

 

The rupee remained under pressure as crude oil prices continued to climb on worries over the escalating conflict in West Asia.

 

Dollar demand linked to derivative maturities and corporate hedging further weighed on the local currency.

 

State-run banks were seen selling dollars, likely on behalf of the Reserve Bank of India, though the scale of intervention has eased compared with last week.

 

“The RBI intervention was keeping rupee above 95 per dollar, but now the scale of intervention has reduced given crude has been inching up,” said a dealer at a state-owned bank.

 

The rupee has depreciated by 4.68 per cent since the onset of the Iran war, whereas it has weakened by 0.29 per cent in the current month so far.

 

Brent crude oil prices were trading at $102.08 per barrel, against the previous day’s $101.21 per barrel.

 

“The rupee reversed the previous week’s gains against the US dollar, pressured by surging crude oil prices, persistent foreign equity outflows, and continued dollar demand from the importers. Meanwhile, central bank Sell/Buy swap operations drove forward premiums higher across the curve. Given the steep rise in spot rupee over the past three sessions, upside momentum may moderate near the 95.80 resistance level, while 95.10 should provide near-term support,” said Dilip Parmar, Research Analyst, HDFC Securities.