The Reserve Bank of India's (RBI) Variable Rate Reverse Repo (VRRR) Auction
The Reserve Bank of India announced a ₹50,000 crore VRRR auction with a three-day tenor to be held on Tuesday.
- The auction was announced due to falling overnight rates as liquidity is re-entering the system.
Overnight Rates and WACR
- Overnight Weighted Average Call Rate (WACR) closed at 5.35%, down from 5.39% previously.
- Tri-party repo rate settled at 5.26%, a decrease from 5.32% on the previous Friday.
- WACR is the central bank's operating target for monetary policy, aiming to keep it close to the repo rate.
Purpose of VRRR Operations
- VRRR operations are designed to absorb surplus liquidity and align short-term rates closer to the policy repo rate.
- On Sunday, net liquidity in the banking system was at a surplus of ₹2.48 trillion.
- A liquidity surplus of around ₹3 trillion has kept overnight WACR near the SDF rate of 5.25% and below the policy repo rate of 5.50% recently.
RBI's Strategy and Auction Results
- The RBI aims to keep overnight rates above the SDF and near the repo rate, anticipating further government spending impacts.
- In a seven-day VRRR auction on Friday, the RBI received bids amounting to ₹1.42 trillion against a notified amount of ₹1.25 trillion.
- The central bank accepted the entire amount at a cut-off rate of 5.49%.
