RBI’s VRRR auction gets tepid response, again

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Banks have shown a clear preference to conserve liquidity, distributing funds much lower than the amount advised in the last four years. Variable rate reverse repo auctions (VRRR) conducted by Reserve Bank of India.

While the RBI’s monetary policy stance remains to be ‘draw easing’, banks, fearing a sudden liquidity mismatch, seem to be holding back from deploying funds to auctions. Banks offered aggregate funds of only ₹1,850 crore in the two-day VRRR which was conducted by RBI on Wednesday for the notified amount of ₹75,000 crore. The central bank accepted funds at a weighted average rate of 6.49 percent.

Overall, in the last four VRRR auctions, banks have posted accumulated funds of ₹1,51,733 crores, against the cumulative amount notified of ₹4.50-lakh crores. Market experts say banks are conserving liquidity because advance tax payments will trigger outflows in mid-June.

Also read: The 3-day VRRR auction receives a relatively better response from the banks

Liquidity forecast

CARE Ratings, in a report, noted that the banking system saw an average monthly surplus of around Rs. 72,000 crore in May largely on account of government spending and maturity of government securities. In the first two months of the financial year, the Government Guarantee (G-Sec) recovery totaled INR 1.45 crore.

“The RBI’s transfer of ₹87,416 crore as surplus to the central government for the 2022-23 accounting year is also positive for liquidity… Withdrawal of ₹2,000 in notes could bode well for liquidity in the short term… given that ₹13,156 crore From G-Sec redemptions due in June, it is likely that RBI will continue to withdraw excess liquidity via reverse repurchase auctions,” the agency said.