On Friday, the RBI will hold a 14-day variable rate repo auction for Rs 1 trillion.
As a result of the severe liquidity crunch, money market rates have increased; on Wednesday, 364-day Treasury bills were selling at yields higher than those on 10-year paper.
The central bank has stated that it will continue to use reverse repo and variable rate repo as necessary to assist the market in navigating short-term imbalances.
The Reserve Bank of India (RBI) announced in a release on Thursday that it would hold a 14-day variable rate repo (VRR) auction on March 10 to infuse up to 1 trillion rupees ($12.19 billion) into the banking sector. Since February 2020, the RBI has only held two VRR auctions; this one will be one of them. The previous VRR sale, which raised Rs 50,000 crore, took place on February 10.
The banking system's liquidity shortfall increased to over Rs 70,000 crore in February, and the monthly average daily liquidity fell into deficit for the first time since May 2019. Although liquidity had a daily surplus of almost Rs 25,000 crore on March 8, it is anticipated to go into a deficit in the following weeks as a result of, among other things, GST payments.
According to a trader from a private bank, "we may have close to Rs 2.5 to 300 billion in outflow towards advance tax and GST in the next fortnight," which may have prompted the RBI to double the quantum of VRR compared to the previous auction.
Money market rates have increased as a result of the severe liquidity crunch; on Wednesday, 364-day Treasury bills were selling at yields higher than those on 10-year paper. The central bank has stated that it will continue to use reverse repo and variable rate repo as appropriate to assist the market in overcoming transient imbalances in the liquidity conditions.
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