RBI injects 75,000 crore into the banking system as liquidity tightens due to tax outflows

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the Reserve Bank of India (RBI) He held a four-day variable rate repo (VRR) auction on Monday to inject liquidity into the banking system, even as money market rates strengthened overnight, rising above the repo rate.

The banks sought to withdraw the accumulated ₹75,695 crore from the Reserve Bank of India against the reported ₹75,000 crore in the auction. They received a combined cash of Rs. 75,004 crore with a cut-off rate of 6.51 per cent.

Bankers attributed the tightness of liquidity in the banking system to outflows related to taxes paid and indirect tax payments. This caused money market prices to solidify overnight above the repo rate of 6.50 percent.

repo rate It is the interest rate at which the Reserve Bank of India provides liquidity to banks to overcome short-term mismatches. The money market provides a means of balancing the short-term excess funds of the lenders and the requirements of the borrowers.

VRR Auction

The central bank last conducted a VRR auction on May 19, when banks withdrew the collected funds ₹46,790 crore from the Reserve Bank of India, for the reported ₹50,000 crore at a cut-off rate of 6.51 per cent.

“Reserve Bank of India (RBI) is offering liquidity to the market through VRR auction. Earlier, liquidity was around INR 1.50-1.60 crore. It fell to around Rs. 85,000 crore on Saturday. This is due to pre-tax inflows of around Rs. 1.50 crore. In addition, there will also be some direct tax outflows of around Rs.40,000-50,000 crore.

“Therefore, about Rs 2-lakh crore will be transferred to government coffers, starting from June 15 to June 21,” said Rama Chandra Reddy, Deputy General Manager (Head of Treasury Department), Karur Visya Bank.

Note that the RBI conducted the VRR auction anticipating tax outflows and tight liquidity.

“Call money and TREPS (Trilateral Repo) are trading in the upper range (around 6.75 per cent Margin Perpetual Facility/MSF). The Reserve Bank of India (RBI) wants the call money rate to fall to 6.50 per cent.

“If the call money is trading around 6.25 per cent, the RBI will conduct a variable rate reverse repo/VRRR. If the call money is trading at around 6.75 per cent, the VRR will take place. The target rate is around 6.50 per cent. Therefore, they They adjust liquidity accordingly through VRR and VRRR auctions.”

The weighted average price (WAR) in the call money market rose to 6.64 percent versus the previous day’s war of 6.18 percent. During the day, a tested high and low call money rate of 6.85 percent and 5 percent respectively per CCIL data.

WAR in the dealing system TREPS rose to 6.60 percent from 6.57 percent in the previous day’s War. During the day, high and low TREPS were tested of 6.77 percent and 6.20 percent, respectively.

WAR tightened the market buyback to 6.60 percent versus 5.50 percent the day before the war. During the day, the market’s repo rate tested high and low of 6.80 percent and 5.50 percent, respectively.

Funds are transacted overnight in the demand money market.

TREPS makes it easy to borrow and lend money in a triple repo arrangement. CCIL is the central counterparty for all trades on the TREPS dealing system.

Market buyback entails arranging the purchase and sale of government securities and government development loans between lenders and borrowers.