RBI’s variable reverse repo rate auction sees muted response from banks
- The deficit in the system came after two months on account of goods and services tax payments and forex outflows.
Mumbai: The Reserve Bank of India’s 14-day variable reverse repo rate (VRRR) auction on Friday saw muted response from banks, predictably as it was announced at a time when the banking system liquidity had slipped into deficit earlier this week.
Banks parked only ₹2,476 crore of funds with the RBI, amounting to less than 10% of the notified amount worth ₹25,000 crore.
The system saw a deficit of ₹9,489 crore of liquidity, according to the latest available data on RBI.
VRRR is the rate at which the RBI borrows from banks for a variable period through an auction process.
Treasury heads said this is a rollover of the existing VRRRs that are being conducted by RBI. In November alone, RBI has conducted 13 VRRRs auctions of different tenures, most of which received lukewarm response.
Market participants, however, believe that this one, too, may receive lower bids.
Few other treasury heads believe that this move by the central bank to further suck out liquidity through the VRRR route is aimed at creating higher demand for rupee, which will in turn support the falling currency.
Also Read | Data dive: Should RBI let the rupee fall?
Rupee has been the second-worst performing currency in Asia due to aggressive selling by foreign investors. Donald Trump’s victory in the US has opened the door for higher tariffs, a stronger dollar, and higher bond yields—all contributing to a weaker rupee.
The Indian currency hit 84.51 before closing at 84.4850 on Thursday as foreign portfolio investors sold shares worth ₹11,000 crores.
“With relatively tighter liquidity conditions and elevated call rates above Repo, rollover of VRRR may be directed towards weakening of Rupee which is hitting 84.50 level. Costlier Rupee may be helpful against strengthening dollar,” said Gopal Tripathi, treasury head, Jana Small Finance Bank.
Bonds rallied after data showed economic growth sharply slowed, leading traders to bet on some easing steps at next week’s monetary policy review.
Gross domestic product grew 5.4% in the three months to September from a year earlier, the Statistics Ministry said in a statement on Friday. Yield on 10-year bond dropped 6bp to 6.74%.
Catch all the Business News , Economy news , Breaking News Events andLatest News Updates on Live Mint. Download TheMint News App to get Daily Market Updates.
Business NewsEconomyRBI’s variable reverse repo rate auction sees muted response from banks
First Published:29 Nov 2024, 10:19 AM IST
- Top Gainers
- Top Losers
- 52 Week High