The Reserve Bank of India (RBI) conducted an overnight variable rate reverse repo (VRRR) auction on Thursday as the banking system liquidity improved on the back of government spending and the weighted average money market rate fell to 6.32 per cent, dealers said.
Banks parked Rs 39,670 crore, against a notified amount of Rs 50,000 crore at a weighted average rate of 6.48 per cent.
The surplus liquidity in the banking system stood at Rs 13,377 crore on Wednesday, against Rs 4,356 crore on Tuesday, according to the latest data by the central bank.
“Apart from government spending, the liquidity improved because of Rs 40,000 crore that came into the system via Dollar/Rupee swap that the RBI did not roll over,” said a dealer at a large state-owned bank.
In March 2022, the central bank had engaged in a $5 billion sell/buy swap, selling dollars while agreeing to repurchase the same amount at the swap’s end. This move aimed to extend the maturity profile of the forwards book and streamline receivables tied to forward assets. As the swap approaches maturity, the RBI faces a decision to either accept delivery of the forward dollars or initiate a new swap.
However, market participants speculate that the liquidity might again fall into deficit given the advanced tax payments. Around Rs 2 trillion worth of outflows are expected until March 31 on the back of advance tax payments, said market participants.
Retail inflation fell to 5.09 per cent in February, little changed from 5.10 per cent in January. While the core inflation fell to a near 12-year low, the rise in food inflation exerted upward pressure on headline inflation.
The food inflation for February stood at 8.66 per cent, against 8.30 per cent in January. The vegetable inflation surged to 30.25 per cent from 27.03 per cent in January.
RBI Governor Shaktikanta Das had elaborated on liquidity conditions in his monetary policy statement, ascribing them to external factors and expecting them to rectify in the foreseeable future, bolstered by market interventions by the central bank.
The RBI, he said, is agile and adaptable in its liquidity management, employing both repo and reverse repo operations. He said the RBI would utilise a judicious mix of instruments to regulate both short-term and long-term liquidity, ensuring that money market interest rates evolved systematically while upholding financial stability.
First Published: Mar 14 2024 | 8:12 PM IST