Mumbai, Oct 5 (SocialNews.XYZ) The Reserve Bank of India (RBI) absorbed Rs 2,10,192 crore from the banking system on Monday through two overnight Variable Rate Reverse Repo (VRRR) auctions -- reflecting the central bank's ongoing efforts to drain excess liquidity from the financial system.
In the first auction, the RBI received bids worth Rs 2,10,688 crore against a notified amount of Rs 2 trillion.
The central bank accepted Rs 2,00,050 crore at a weighted average rate of 5.24 per cent.
The response was considerably weaker in the second auction, where banks submitted bids worth only Rs 10,142 crore against the notified amount of Rs 50,000 crore. The RBI accepted the entire bid amount.
The move comes at a time when liquidity conditions in the banking system remain highly comfortable.
According to RBI data, surplus liquidity stood at around Rs 5.16 trillion as of October 4.
Over the past two months, the central bank has conducted a series of VRRR auctions to absorb excess funds from the banking system and ensure that short-term money market rates remain close to the repo rate, which serves as the RBI's key policy benchmark.
Banking system liquidity has been supported by substantial mobilisation of Foreign Currency Non-Resident (Bank) or FCNR(B) deposits.
These inflows brought foreign currency into the banking system, while subsequent swap transactions with the RBI injected rupee liquidity into banks.
In addition to FCNR(B) inflows, government spending at the end of the month, including payments towards salaries and pensions, has further boosted liquidity in the system.
With liquidity remaining significantly above neutral levels, market participants expect the RBI to continue deploying short-term liquidity management tools, including VRRR auctions, to absorb surplus funds and maintain stability in money market rates.
Source: IANS
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