VRR auction: Banks put in bids to draw funds aggregating ₹3,92,484 cr from RBI

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Banks continue to make a beeline for liquidity injection from the RBI, with the 13-day variable rate repo auction attracting demand to draw funds aggregating ₹3,92,484 crore against the notified amount of ₹1.75-lakh crore.

The RBI accepted bids to inject liquidity, aggregating ₹1,75,010 crore at a weighted average rate of 6.72 per cent.

As of January 11th, the banking system’s liquidity deficit stood at ₹1.63-lakh crore, per RBI data. The liquidity deficit is due to last month’s outflows on account of advance tax and GST payments by India Inc., according to market experts.

The deficit is exerting pressure on overnight call money rates, with the weighted average call rate hovering at or above the liquidity adjustment facility’s 6.75 per cent ceiling on most days in the last few months. The overnight call money rate nudged up to 6.78 per cent on Friday, vis-à-vis the previous day’s 6.76 per cent.

The 10-year yield closed at 7.18 per cent against the previous day’s 7.16 per cent on caution ahead of the CPI inflation announcement by the government.

Nuvama, in its fixed income advisory, noted that the 10-year benchmark (7.18 GS 2033) yield opened flat at 7.16 per cent despite a sharp fall in Treasury yields overnight (as better-than-expected auction results offset the impact of stronger US CPI inflation and cautious commentary from Fed speakers).

However, yields traded with an upward bias on the day (on caution ahead of the India CPI inflation announcement).

“We now expect the benchmark 10-year G-sec to trade in a range of 7.15-7.30 per cent in the near term as markets await the issuance of a new 10-year benchmark,” Kotak Securities said in a report.

Meanwhile, the rupee appreciated below the 83 level to close at a four-month high of 82.9225 per dollar against the previous close of 83.0275 due to dollar inflows.

Dealers attributed two reasons for the rupee’s appreciating by about 11 paise: foreign banks reportedly selling dollars on behalf of their custodial clients and SBI possibly bringing in the proceeds of the recent $600 million dollar Regulation-S issuance.