• Notification Date: 21-01-2022
• Notification No: N/A

Special Repo Auction to be held by RBI

The Reserve Bank of India (RBI) has conducted a special rate repo operation instead of the usual variable rate reverse repo on Thursday. This new repo auction has been made to acquire cash. A large amount of goods and service tax (GST) has tightened the cash liquidity this week.

The Central Bank has offered Rs.50,000 crore for a day as a loan to the banking system. The central bank got bids for Rs.65,700 crore. The cut-off rate was 4.06 percent higher than the repo rate and the weighted average was higher by 4.10 percent. The bank uses the weighted average for interbank lending. It touched 4.3587 percent on Thursday. The banking system is facing high liquidity stress.

The lowest and highest call money rates were 2.80 percent and 4.65 percent respectively. According to the bond market participants, this reflected the asymmetry in the liquidity. One set of banks is running low on liquidity. But the money is getting deposited with the lenders’ banks. The public sector banks are getting more money because of the high deposit base.

The system liquidity is at a surplus of Rs.6 trillion. This amount is sufficient for keeping the money market at soft rates. The central bank is continuously attempting to remove the higher amounts from the banking system. It is conducting the VRRR auctions. The excess liquidity measures have flooded the banking system with a lot of funds.

The Central Bank conducted a 14-days VRRR auction to remove surplus liquidity of Rs.7.5 trillion. But it was successful in acquiring only Rs.2.67 trillion. A reverse repo auction of Rs.5 trillion was conducted by the central bank. But the banks offered only rs.4.31 trillion.

Liquidity tightening was possible in the system by this repo auction and GST collection made the situation severe even further. The central bank stated that it is attempting to tighten the liquidity and the measures are resulting in the rebalancing of surplus liquidity. It is changing the fixed-rate overnight reverse repo auction. Instead, VRRR auctions of a longer effect will be held.