RBI News Today: Central bank conducts Rs 1 trillion variable rate reverse repo auctions to tighten liquidity
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Introduction: RBI News Today
In a strategic maneuver aimed at regulating liquidity amidst heightened government spending, the Reserve Bank of India (RBI) orchestrated two variable rate reverse repo (VRRR) auctions totaling Rs 1 trillion. This proactive decision, announced on Wednesday, underscores the central bank’s vigilance in managing liquidity dynamics amid evolving economic circumstances.
Objective: Maintaining Market Rates
The auctions, designed to enable banks to park surplus funds with the RBI, were conducted with the overarching objective of aligning overnight money market rates with the repo rate. Despite witnessing a partial improvement in the liquidity deficit within the banking system, with figures hovering just above Rs one trillion compared to the previous record shortfall of Rs 3.46 trillion on January 24, the RBI remains steadfast in its approach.
Auction Outcomes
In the first VRRR auction conducted on Wednesday, banks allocated Rs 96,093 crore against the notified amount of Rs 50,000 crore. The RBI, in turn, accepted Rs 50,019 crore at a cut-off rate of 6.49 per cent. Subsequently, in the second auction, offers amounted to Rs 11,829 crore against the same notified sum, all of which were duly accepted at a weighted average rate of 6.49 per cent.
Earlier Auctions and Market Response
Earlier in the week, on Monday, the RBI garnered Rs 27,538 crore in the first auction against a notified amount of Rs 75,000 crore, while the second auction attracted offers worth Rs 41,804 crore against a set amount of Rs 50,000 crore. Notably, a four-day VRRR auction on Monday saw banks parking Rs 18,750 crore of their surplus funds with the central bank.
Implications amidst MPC Meeting
These measures unfold against the backdrop of the ongoing three-day meeting of the monetary policy committee (MPC), slated to conclude on Thursday. Market sentiment anticipates the maintenance of the policy repo rate at its current stance of 6.5 per cent by the interest rate setting panel.
Conclusion: RBI News Today
The RBI’s meticulous orchestration of VRRR auctions underscores its commitment to calibrating liquidity conditions in alignment with broader macroeconomic objectives. By employing these mechanisms, the central bank aims to foster stability within the financial system while navigating the complexities of evolving economic landscapes.
also read RBI conducts variable rate reverse repo auctions worth Rs 1 trillion to tighten liquidity tap
