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RBI's 7-day VRRR receives significant demand due to reversal of ₹2 trillion
The central bank accepted the notified amount at a cut-off rate of 5.49 per cent.
'The demand was there because of the reversal of Rs. 2 trillion,' said a dealer at a state-owned bank. 'Given that money market rates have softened again, VRRR auctions are expected to continue,' he added.
The RBI had conducted two variable rate repo (VRR) auctions during the week after overnight money market rates rose above the repo rate. The RBI's two-day VRR auction, conducted on Wednesday, led to a decline in overnight money market rates, which had been trading above the MSF rate of 5.75 per cent.
The marginal standing facility rate, set 25 bps above the policy repo rate, is the ceiling of the liquidity adjustment facility corridor. The standing deposit facility, which is 25 bps below the repo rate, is the floor. The policy repo rate is currently at 5.5 per cent.
Market participants said that the fine-tuning via VRR auctions became necessary due to the large withdrawal during a week of liquidity stress. Next week, the RBI may not need a VRR, as government spending typically picks up in the last week of the month, they said.
'We don't expect more VRRs now, but a similar situation could arise around September 15 during tax outflows. The RBI might come back with VRR again around that time,' said a dealer at a primary dealership.
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