RBI receives ₹1.94 trillion bids for repo operation

The Reserve Bank of India (RBI) on Monday said it received bids worth ₹1.94 trillion for its three-year long-term repo operation (LTRO), or more than 7.8 times the funds on offer. The central bank received bids for ₹1.94 trillion, of which it accepted bids of ₹25,035 crore.

“The response to the LTRO has been highly encouraging,” said RBI in a press release.

While on 6 February, the RBI’s monetary policy committee had maintained status quo for its bimonthly policy review keeping the repo rate unchanged at 5.15%, it had introduced unconventional liquidity and interest rate measures through the one-year and three-year LTROs, aggregating to ₹1 trillion to improve interest rate transmission and to ease liquidity in the system.

The RBI move is aimed at providing cheaper money to banks at the repo rate so that it can be used to boost credit growth. The central bank also withdrew the daily fixed rate repo and four 14-day term repos every fortnight.

According to market participants, RBI had attempted longer-term repos/reverse repos in the past, too, but with little success, as market participants preferred overnight operations. However, they believe that the move to replace such overnight operations with LTRO is a smart one.

“The LTRO assures durable liquidity into the system. Compared to one-year deposit, which is currently at 5.3% or three-year G-sec, which is currently at 5.77%, banks are able to lock in three-year liquidity at a cheaper rate,” said the head of treasury at a public sector bank, requesting anonymity.

The LTROs will be in addition to the existing liquidity adjustment facility (LAF) and marginal standing facility (MSF) operations. One-year repo operation will be conducted for the same amount on 24 February. “People who believe interest rates are at the lowest at 5.15% for the next three years on an average, or who have asset liability management benefit, may look at borrowing under LTRO,” said Kamal Mahajan, treasury head of Bank of Baroda.