RBI receives 2.7x times bids at seven-day VRR auction

In a sign of liquidity tightness in the banking system, banks’ placed bids aggregating ₹2,73,354 crore at the 7-day variable rate repo (VRR) auction conducted by RBI on Friday against the notified amount of ₹1-lakh crore.

RBI conducted VRR auction in view of likely outflows from the banking system on account of advance tax and GST payments

The central bank also conducted the aforementioned auction to absorb the ₹22,468 crore inflows Banks received on account of reversal of the day VRRR auction conducted on December 1, 2023.

RBI allotted liquidity amounting to ₹1,00,006 crore at the weighted average rate of 6.63 per cent.

Deficit liquidity

In his latest monetary policy statement, RBI Governor Shaktikanta Das observed that system liquidity, as measured by the net position under the liquidity adjustment facility (LAF), turned into deficit mode for the first time in September 2023 after a gap of nearly four and a half years since May 2019.

“Deficit liquidity conditions persisted during October and November prompting large recourse to the marginal standing facility (MSF) by banks. In parallel, utilisation of the standing deposit facility (SDF) has also been high.

“The overall tightening of liquidity conditions is attributed mainly to higher currency leakage during the festive season, government cash balances and Reserve Bank’s market operations. Driven by these autonomous factors, system liquidity tightened significantly compared to what was envisaged in the October policy statement,” Das said.

Consequently, the need to undertake auction of OMO sales has not arisen so far.

“The evolution of liquidity conditions has been in alignment with the monetary policy stance. More recently, however, as government spending has picked up and system liquidity has got more evenly balanced among market participants, pressures have eased and the net LAF position has evened out broadly.

“Going forward, government spending is likely to further ease liquidity conditions. On our part, the Reserve Bank will remain nimble in liquidity management,” the Governor said.