RBI injects Rs 1 lakh crore as liquidity tightens before festive season
On Monday, the RBI announced a Rs 1-lakh-crore variable rate repo (VRR) auction for the first time since late July after the weighted average call rate (WACR) at 5.67% on Monday, or 17 basis points higher than the repo rate of 5.50%. The central bank will conduct another VRR for Rs 50,000 crore on Wednesday.
Mumbai: The Reserve Bank of India (RBI) has recently taken an unprecedented step by injecting Rs 1 lakh crore to address liquidity tightening ahead of the festive season. This move came as the overnight call rates skyrocketed past the policy benchmark, prompting the central bank to implement its first liquidity infusion program in three months since late July.
The decision to conduct the variable rate repo (VRR) auction of Rs 1 lakh crore was made on Monday, following the weighted average call rate (WACR) of 5.67%, which is 17 basis points higher than the repo rate of 5.50%. The central bank has also announced a supplementary VRR of Rs 50,000 crore scheduled for Wednesday.
The primary objective of this liquidity infusion is to assist banks in managing funds amid the monthly tax outflow, which has been exacerbated by the tightening of the daily cash reserve requirement implemented on October 16. This move comes amid traders' insights suggesting that the liquidity infusion will aid banks in maintaining the overnight rate at the repo rate.
Notably, the WACR has been edging closer to the marginal standing facility (MSF) due to the RBI's tightening of the daily cash reserve requirement. On Friday, the WACR reached the MSF for the first time this year, with the standing deposit facility marking the lower limit of the RBI's Liquidity Adjustment Facility corridor, with the policy repo rate situated in the middle.
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