Muted Demand at RBI's VRR Auction Reflects Surplus Liquidity
RBI's 3-day VRR auction receives muted demand amid surplus liquidity
Business Standard
Image: Business Standard
The Reserve Bank of India (RBI) received bids of ₹7,091 crore at its three-day variable rate repo (VRR) auction, significantly lower than the ₹50,000 crore offered. This weak demand is attributed to ample liquidity in the banking system, which stood at a surplus of ₹1.94 trillion, influencing call rates and market expectations for a potential rate hike.
- 01RBI's VRR auction saw bids of ₹7,091 crore against a ₹50,000 crore offering.
- 02Ample liquidity in the banking system contributed to weak demand.
- 03Net liquidity surplus was ₹1.94 trillion as of Monday.
- 04The weighted average call rate fell to 5.25% post-auction.
- 05Market anticipates a potential rate hike, influencing call rates.
Advertisement
In-Article Ad
The Reserve Bank of India (RBI) conducted a three-day variable rate repo (VRR) auction, receiving bids worth ₹7,091 crore, a stark contrast to the ₹50,000 crore it had notified. This muted demand is largely due to a surplus liquidity in the banking system, which was reported at ₹1.94 trillion on Monday. Following the auction, the weighted average overnight call rate decreased to 5.25%, down from 5.31%. Market analysts indicate that the elevated call rates are a reflection of growing expectations for a potential interest rate hike. Additionally, three-month and six-month overnight indexed swap (OIS) rates have also increased, with the one-month OIS rate settling at 5.40%, up from 5.37% previously. Dealers suggest that the VRR auction's lack of demand stems from the ample liquidity available, making the call market more attractive due to its less stringent collateral requirements. The RBI utilizes VRR auctions to manage short-term liquidity, ensuring that the weighted average call rate aligns closely with its policy repo rate.
Advertisement
In-Article Ad
The muted demand at the VRR auction indicates a stable liquidity environment, which may affect borrowing costs for banks and, subsequently, interest rates for consumers.
Advertisement
In-Article Ad
Reader Poll
Do you think the RBI should adjust interest rates in response to current liquidity conditions?
Connecting to poll...
More about Reserve Bank of India
Read the original article
Visit the source for the complete story.




