Updated December 27th, 2023 at 12:28 IST
RBI to conduct third repo auction in less than two weeks
The RBI's move involves a two-day repo for Rs 50,000 crore, reflecting a response to the current and evolving liquidity conditions, as stated by the central ban
Amid tight liquidity conditions and elevated overnight rates, the Reserve Bank of India (RBI) has announced its decision to conduct a variable rate repo (VRR) auction for the third time in less than two weeks, signalling the central bank's ongoing efforts to manage liquidity challenges.
The RBI's move involves a two-day repo for Rs 50,000 crore, reflecting a response to the current and evolving liquidity conditions, as stated by the central bank. The move comes after an injection of Rs 1.75 lakh crore through a seven-day VRR auction on December 22 and an additional Rs 1 lakh crore the preceding week, which matured on the same date.
Market expectations for short-term cash infusion from the RBI had risen, particularly as the liquidity deficit in the banking system approached near eight-year highs, hitting Rs 2.68 lakh crore as of December 26, the highest level since April 2016.
Despite the liquidity injections, overnight rates persistently remain above the marginal standing facility (MSF) rate of 6.75 per cent, representing the upper limit of the monetary policy corridor. As of Wednesday, the weighted average interbank call money rate stood at 6.89 per cent, with the weighted average TREPS rate at 6.79 per cent.
The RBI's proactive approach through successive VRR auctions underscores its commitment to addressing liquidity challenges and maintaining stability in the financial system. The evolving situation in liquidity conditions will continue to be monitored closely by market participants, and the central bank's actions are anticipated to play a crucial role in influencing short-term interest rates and overall liquidity dynamics.
(With Reuters inputs)
Published December 27th, 2023 at 12:28 IST