The Reserve Bank of India (RBI) on Tuesday absorbed surplus liquidity aggregating ₹44,430 crore through two variable rate reverse repo (VRRR) auctions of three days tenor. The aforementioned amount was deployed by banks even as the central bank was ready to absorb a total of ₹1-lakh crore (notified amount).

At the first three-day VRRR auction for a notified amount of ₹50,000 crore, banks deployed funds aggregating ₹41,730 crore. The central bank accepted these funds at a weighted average rate (WAR) of 6.48 per cent.

At the second three-day VRRR auction for a notified amount of ₹50,000 crore, banks deployed funds aggregating ₹2,700 crore. The central bank accepted these funds at a WAR of 6.49 per cent.

Liquidity surplus widens

Nuvama, in a report, said, the system liquidity surplus widened to ₹28,800 crore (without adjustments to daily cash reserve ratio imbalances). This was mainly on account of month-end government spending.

Madhavi Arora, Lead Economist, and Harshal Patel, Research Associate, Emkay Global Financial Services, observed that the RBI’s dividend pay-out announcement (of ₹2.1-lakh crore) in end-May (to be effectively spent only in early-June/July) and the post election pent-up spending by the government, should bode well for banking system liquidity.

“The improvement in liquidity will be further helped by lower CIC (currency in circulation) in the coming months and consistent debt FPI flows. We see the net liquidity surplus averaging about 0.5-0.8 per cent of NDTL (net demand and time liabilities) in the next three months vs current deficit of about 0.7 per cent of NDTL.

“While this would lead the call money rate to stay at or mildly lower than the repo rate, we do not see the RBI taking any imminent drastic action to suck out this liquidity durably from the system through blunt tools like OMOs (although regular tools like VRRR will continue),” they said.

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