The Reserve Bank of India (RBI) has decided to conduct daily Variable Rate Repo (VRR) auctions until further notice to ease liquidity tightness in the banking system. The first such auction will be conducted on January 16 for ₹50,000 crore.
With the liquidity deficit, which has come about due to RBI’s intervention (aimed at ensuring gradual depreciation of the Rupee against the Dollar) in the forex market, estimated at about ₹2 lakh crore as on January 14, market players say the move couldn’t have come at a better time.
The daily liquidity support via VRR auction could, to an extent, neutralise the (Rupee) liquidity-draining effect of RBI’s forex market intervention. This could also soften Government Security yields.
The banking system has received liquidity worth Rs 1.16 lakh crore after the CRR cut by RBI. The liquidity was infused in two tranches on December 14 and December 28. But this proved to be inadequate because of heavy outflows due to advance tax and goods and services tax payments.
The banking system witnessed outflows of over Rs 3 lakh crore on the back of tax payments in recent weeks. Currently, the banking system is running a deficit of Rs 2.1 lakh crore.