The Reserve Bank of India (RBI) saw huge demand for funds at the 15-day variable rate repo (VRR) auction it conducted on Thursday, with banks seeking to draw about 2.86 times the notified amount of ₹50,000 crore.
The fact that the aforementioned auction comes against the backdrop of a 15-day variable rate reverse repo (VRRR) auction on Wednesday underscores the liquidity fluctuation in the banking system.
RBI does fine-tuning liquidity operations by conducting VRR auctions when there is a liquidity deficit and VRRR auctions when there is surplus liquidity.
At the VRR auction on Thursday, the RBI received bids from banks aggregating ₹1,43,063 crore to draw funds against the notified amount of ₹50,000 crore. It gave funds amounting to ₹50,007 crore at a weighted average rate (WAR) of 6.62 per cent.
At the VRRR auction on Wednesday, the RBI received offers from banks for deploying funds aggregating ₹1,29,793 crore against the notified amount of ₹1-lakh crore. It absorbed funds amounting to ₹1,00,027 crore at a WAR of 6.49 per cent.
Govt spending
Market players say the short-term surplus liquidity in the banking system is due to government spending picking up. However, this liquidity is expected to dwindle as the dates for payments of GST and advance tax draw closer. This, in turn, may prompt the RBI to conduct VRR auctions to inject liquidity.
The short-term surplus liquidity in the banking system as of March 6 stood at ₹1,55,985 crore.
Meanwhile, government securities (G-Secs) yields thawed in line with lower US Treasury yields. The yield of the benchmark 10-year G-Sec softened by about 2 basis points to close at 7.0294 per cent against the previous close of 7.0548 per cent. The price of this paper rose by about 17 paise to close at ₹101.0175 (previous close: ₹100.845).