RBI to absorb ₹1.5 trillion via VRRR as liquidity tops ₹3 trillion | Finance News
With liquidity surplus in the banking system crossing ₹3 trillion for the first time in nearly four months, the Reserve Bank of India (RBI) announced a seven-day variable rate reverse repo (VRRR) auction to absorb ₹1.5 trillion from the banking system. The auction will be conducted on Thursday.
The last time the central bank conducted a VRRR auction was on April 17 this year. A VRRR auction is a liquidity absorption tool used by the RBI to temporarily absorb surplus liquidity from the banking system.
Net liquidity in the banking system stood at a surplus of ₹3.33 trillion on Tuesday, the highest since April 20 this year, according to the latest data from the central bank. Consequently, the overnight weighted average call rate (WACR) remained close to the Standing Deposit Facility (SDF) rate. The WACR — the operating target of monetary policy — settled at 5.05 per cent on Wednesday, compared with 5.06 per cent in the previous session.
The Reserve Bank will proactively ensure sufficient liquidity in the banking system, guided by the objective of aligning the weighted average call rate (WACR) with the policy repo rate, RBI Governor Sanjay Malhotra said during the post-policy media interaction.
“The RBI would not want the overnight rate to fall below the SDF. That is why this VRRR auction is being conducted,” said a dealer at a primary dealership.
The SDF rate, which currently stands at 5 per cent, is the interest rate at which banks park their surplus funds with the RBI without providing collateral. It forms the lower bound of the RBI’s policy corridor, with the repo rate at the centre and the marginal standing facility (MSF) rate at the upper bound.
