The Reserve Bank of India (RBI) will conduct a 14-day variable rate repo (VRR) auction on March 10 to inject up to 1 trillion rupees ($12.19 billion) into the banking system, it stated in a launch on Thursday.
This will probably be solely the second VRR auction performed by the RBI since February 2020. The earlier VRR auction was performed on Feb 10 for Rs 50,000 crore.
The liquidity deficit within the banking system had widened to over Rs 70,000 crore in February, with the day by day common liquidity additionally slipping into deficit on a month-to-month foundation for the primary time since May 2019.
Although liquidity, on a day by day foundation, was a surplus of round Rs 25,000 crore on March 8, it’s anticipated to dip right into a deficit within the coming weeks due to funds for items and providers tax (GST) amongst others.
“We could have shut to Rs 2.5 to 3 trillion of outflow in direction of advance tax and GST within the subsequent fortnight, which can have compelled the RBI to double the quantum of VRR in contrast to the earlier auction,” a dealer with a non-public financial institution stated.
The sharp squeeze in liquidity has pushed up cash market charges, with the 364-day treasury payments promoting at yields above the 10-year paper’s on Wednesday.
The central financial institution has stated it will proceed to resort to variable rate repo and reverse repo as and when obligatory to assist the market tide over momentary mismatches within the liquidity circumstances.
(*1*)(This story has not been edited by Business Standard employees and is auto-generated from a syndicated feed.)