RBI To Conduct Daily VRR Auctions To Manage Liquidity Better
The Reserve Bank of India aims to address a Rs 2.09 lakh crore liquidity deficit by conducting daily VRR auctions, with the first auction offering Rs 50,000 crore.
The Reserve Bank of India on Wednesday decided to conduct variable-rate repo auctions on a daily basis in order to boost banking system liquidity, the central bank said in a statement.
The VRR auctions will be conducted between 10:00 a.m. and 10:30 a.m. every day and will be reversed the following day.
The first such daily auction will take place on Thursday, worth Rs 50,000 crore, and standalone primary dealers will be allowed to participate in the auction with other eligible bidders.
This has come as the banking system liquidity deficit was at Rs 2.09 lakh crore as of Jan 14.
RBI usually conducts VRR auctions to inject liquidity into the banking system when it turns into deficit mode.
On Wednesday, RBI conducted a five-day VRR auction with a notified amount of Rs 75,000 crore, and banks had submitted bids worth Rs 3,980 crore. This is in contrast to its four-day VRR auction on Monday, with a notified amount of Rs 50,000 crore, which received total bids worth Rs 86,155 crore.
Increasing foreign exchange intervention by the RBI has largely been the reason behind this decrease in overall banking liquidity. Direct interventions require the RBI to sell dollars to the system while rupee liquidity is sucked out.
On Monday, the Indian rupee declined past the psychologically crucial level of 86 against the dollar after better-than-expected US jobs data led to an expectation that the Federal Reserve would go easy on rate cuts.
