Informist, Thursday, Jan 20, 2022

--To rebalance liquidity conditions in non-disruptive way 

--Higher GST outflows tightened system liquidity 

--500-bln-rupee, overnight repo from 1300-1330 IST today 

--500-bln-rupee, overnight repo timing revised to 1300-1430 IST 

MUMBAI – With borrowing rates in money markets surging to the highest levels in over a year due to a sudden shortage of overnight funds, the Reserve Bank of India announced that it will conduct an overnight Variable Rate Repo auction for notified amount of 500 bln rupees.

“With larger than anticipated collections under the goods and services tax, system liquidity has tightened in this week,” the RBI said.

“This is also reflected in the hardening of overnight money market rates, and in amounts under the fixed rate reverse repo of the liquidity adjustment facility.”

This will be first variable rate repo auction since March 2021. Liquidity was in high surplus due to money infused in the banking system to tackle economic fallout of the COVID-19 pandemic. The RBI has conducted variable rate repo auctions only for four times since March 2020.  More

Since January 2021, the RBI has started holding variable rate reverse repo auctions to absorb excessive surplus liquidity from the banking system.

Earlier today, the inter-bank call money rate rose above the RBI’s Marginal Standing Facility rate of 4.25% due to strong demand from banks to meet their funding requirements amid outflows for goods and service tax payments.

The call rate surged because of a decline in the overnight liquidity and also banks have parked excess fund in seven-day variable rate reverse repo auction, dealers said.

With banks scrambling for funds, the weighted average rate in tripartite repo segment, where the bulk of overnight lending takes place, moved higher to 4.23% from 3.66% on Tuesday and 3.47% on Monday. Not taking into account one-off distortions, this is the highest weighted average rate in TREPS since Sep 5, 2020.

Today, the RBI is conducting an overnight variable rate reverse repo auction for a notified amount of 500 bln rupees between 1300 IST and 1430 IST.

The auction will be conducted on the RBI's Core Banking Solution (e-Kuber) platform. Successful bids will get the accepted at their respective bid rates. The RBI said bids at or above the repo rate of 4.00% would be rejected. end

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Reported by Richard Fargose

Edited by Arshad Hussain

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