Advertisement
What really powers the cloud? Behind every Google search, A...
A lot of what defines a home isn’t visible at handover. I...
Private equity has played a significant role in shaping Indi...
Luxury real estate is one of the most talked-about segments ...
Airports play a much bigger role than just enabling travel -...
The Reserve Bank of India infused INR 81,590 crore into the banking system through a three-day variable rate repo (VRR) auction to address tightening liquidity conditions. The funds were injected at a cut-off rate of 5.26 per cent. Although banks’ demand remained below the notified amount of INR 1 lakh crore, participation improved compared to the previous auction conducted this week. Banking system liquidity surplus also saw a sharp decline over the past few days, leading to higher overnight call money rates. Market participants expect the central bank to continue liquidity management measures if pressure on short-term rates persists.
The Reserve Bank of India injected INR 81,590 crore into the banking system through a three-day variable rate repo (VRR) auction as liquidity conditions tightened in the financial system. Advertisement
According to the central bank, the funds were infused at a cut-off rate of 5.26 per cent. The move comes at a time when surplus liquidity in the banking system has narrowed sharply, leading to higher short-term borrowing costs among banks.
A VRR auction is a monetary policy tool used by the RBI to provide short-term funds to banks against government securities. The mechanism is generally used to manage temporary liquidity mismatches in the banking system and stabilise money market rates.
Despite the liquidity pressure, demand from banks remained below the notified auction amount of INR 1 lakh crore. However, the response was stronger compared to the previous VRR auction conducted this week, indicating a gradual rise in funding requirements among lenders.
Data released by the RBI showed that the liquidity surplus in the banking system fell to around INR 58,876.29 crore, compared to nearly INR 1.51 lakh crore in the previous session. The decline in surplus liquidity has resulted in a sharp rise in overnight call money rates, which are closely monitored as an indicator of short-term liquidity conditions.
The recent moderation in surplus liquidity is being linked to routine tax outflows, advance tax payments and other temporary fund movements in the banking system. Market participants said such fluctuations are usually addressed through short-duration liquidity operations by the central bank.
Banking and money market experts expect the RBI to continue monitoring liquidity conditions closely and conduct additional VRR auctions if required. The central bank has used similar liquidity management measures in the past to ensure adequate cash availability in the banking system and prevent volatility in short-term interest rates.
Source PTI
5th Jun, 2025
25th May, 2023
11th May, 2023
27th Apr, 2023
Advertisement
Facebook
Whatsapp
