On 14 December, RBI ( Reserve Bank of India) said that they conducted the 7-day variable rate repo action for 1 Lakh crore amount outflow on 15 December. It was announced with an outflow view from the banking system on advanced tax and GST payment accounts. This 7-day VRR auction will occur between 10:30 AM and 11:00 AM, and funds reversal will take place on 22 December, according to the central bank.
7-Day VRR Auction
The variable rate repo auction is performed to inject liquidity into the banking rate when it turns negative or lacking. From sources, it has come to know that the liquidity in the banking machine is in deficit of around Rs 38,774.92 crore.
In the previous few months, liquidity in the banking rate remained tight, particularly after the vital bank brought Incremental Cash Reserve Ratio (I-CRR), which pulled out around Rs 1 lakh crore from the gadget. RBI Governor Shaktikanta Das, throughout the December economic policy, said that the Reserve Bank will continue to be nimble in liquidity control. Further, it additionally proposed to permit reversal of liquidity facilities under each SDF and MSF even at some point of weekends and holidays with effects from 30 December 2023
When the 7-day Variable Rate Repo auction starts
It has been decided by RBI to conduct a 7-day variable rate repo auction on Friday, 15 December 2023.” The closing time that the RBI had carried out a variable price repo auction became on 19 June. Over the past year, the valuable financial institution has taken steps to empty out excess liquidity from the banking machine.
However, liquidity has tightened significantly over the last couple of months because of the demand for foreign money in the course of the festive season, the RBI’s moves in foreign money markets, and tax payments. On 13 December, the liquidity deficit was at ₹ 38,774.92 crore, RBI facts showed.
Why RBI conducts the 7-day VRR auction
The Reserve Bank of India (RBI) will perform a 7-day variable rate repo auction worth ₹1 lakh crore on 15 December, marking the first time in six months that the significant financial institution will infuse liquidity into the banking machine through this direction. The RBI has made the choice to inject liquidity into the banking system in light of outflows due to a boost in tax, goods, and carrier bills.
“The 14-day VRRR public sale performed on 01 December, 2023 and subscribed for ₹22,468 crore is maturing and allowed to be reversed on 15 December, 2023,” as per officials.
Conclusion
This time, RBI decided to conduct the 7-day VRR auction to infuse liquidity into the Banking system. It is the first time that RBI has decided to infuse liquidity into the banking system. Before this, in the past year, the central bank conducted a VRR auction on 19 June to drain liquidity from the banking system.
