The seven-day variable rate repo (VRR) auction on Friday received a strong response, with banks placing bids worth Rs 2.73 trillion, against the notified amount of Rs 1 trillion. The VRR auction, the first such auction in the past six months, is expected to easy liquidity. Banks have seen outflows on account of advance tax and GST payments.
“High bids reflect the desperation of banks for funds and shows the severity of liquidity tightness in the system,” a dealer at a private bank told FE.
As on December 14, the liquidity deficit was at Rs 44,285 crore, according to the RBI data.
The central bank accepted bids at 6.61% cut-off rate which is lower than the MSF (marginal standing facility) rate of 6.75%. Through RBI’s MSF, banks can obtain liquidity overnight when interbank liquidity dries up.
The previous VRR auction was conducted the central bank on June 19.
A repo auction is conducted by the central bank to inject liquidity in the banking system while reverse repo auction is conducted to mop up excess liquidity.
The liquidity has slipped into the deficit mode since September, which prompted banks to borrow heavily from the marginal standing facility to meet their funding needs.
Banks’ borrowing through MSF had touched an all-time high of Rs 2.34 trillion on November 22. MSF borrowing averaged nearly Rs 0.95 trillion during September which further increased to Rs1.2 trillion during October-November 2023. Average fund parked under the SDF was at Rs 0.62 trillion and Rs 0.58 trillion in October and November, respectively.