India cenbank announces reverse repo to arrest fall in overnight rates
MUMBAI (Reuters) -India's central bank said on Tuesday it will conduct a seven-day variable rate reverse repo auction worth one trillion rupees ($11.62 billion) on June 27, following a review of liquidity conditions in the banking system.
The Reserve Bank of India (RBI) added that after reviewing evolving liquidity conditions, it will not conduct the 14-day main operation scheduled for Friday, for the ensuing fortnight, according to a press release.
India's banking system liquidity surplus stood at 2.44 trillion rupees as of June 23, as per RBI data.
The central bank in June announced a surprise 100-basis-point reduction in the cash reserve ratio, the portion of deposits banks must park with the RBI, in four equal tranches beginning September, lowering it to 3%, to boost policy transmission.
Amid surplus liquidity conditions, the weighted average overnight call rate has remained well below the RBI's key repo rate and near the policy corridor's floor, the Standing Deposit Facility rate, for the past few weeks.
A persistent gap between the RBI's operative rate and the policy rate typically signals that banks are accessing cheaper funding than what the central bank is comfortable with, as per traders.
Earlier this month, Reuters had reported that the RBI could start conducting variable rate reverse repo auctions to suck out surplus liquidity as and when required.
"The move (VRRR announcement) indicates that the RBI wants the operative rate closer to the repo rate," said Gaura Sen Gupta, India economist at IDFC FIRST Bank.
The move comes sooner than expected with the transmission via various channels - credit, deposit and bond market - in its early stages, Sen Gupta said, adding that the move may lead to a further rise in short-term yields.
($1 = 86.0580 Indian rupees)
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Bloomberg
25 minutes ago
- Bloomberg
Textile, Farm Exports Hopes Rise on UK-India Trade Deal
Before the trading day starts we bring you a digest of the key news and events that are likely to move markets. Today we look at: Good morning, this is Alex Gabriel Simon, an equities reporter in Mumbai. Looks like Indian stocks are set for a rough morning, considering the weakness in Nifty futures and other Asian markets. It's a relief that the Nifty gauge held onto its 50-day moving average yesterday - a break below that would've been worrying. Today, all eyes are on the financial services sector as big players like Bajaj Finserv, Bank of Baroda, SBI Cards, and Shriram Finance announce their quarterly results. Meanwhile, Sun Pharma might take a hit after paying up $200 million to settle a price-fixing case in the US.
Yahoo
an hour ago
- Yahoo
Dip in Asian currencies, outflows likely to keep up pressure on rupee
By Jaspreet Kalra MUMBAI (Reuters) -The Indian rupee is expected to open weaker on Friday and trade with a modest depreciation bias amid a dip in its regional peers and lingering pressure from portfolio outflows as investors gird for an upcoming news-heavy week. The 1-month non-deliverable forward indicated the rupee will open around 86.48-86.50 versus the U.S. dollar, compared with 86.4050 in the previous session. Asian currencies were down between 0.1% and 0.3%, while the dollar index ticked up to 97.5, as investors braced for U.S. President Donald Trump's tariff deadline, a Federal Reserve policy decision, and key U.S. economic data releases, all due next week. The rupee is expected to trade with a slight downward bias and could test support near 86.70-86.80 in the near term, a trader at a state-run bank said. While there is "nascent" interbank interest in taking long bets on the rupee, that is largely on the back of the market expecting some positive announcement on U.S.-India trade negotiations, the trader added. While optimism about U.S. trade deals with China and the European Union has picked up after an agreement with Japan, the prospects of a deal for India ahead of the August 1 deadline have dimmed. Britain and India signed a free trade agreement on Thursday, with India's trade minister saying that he remains confident of concluding a trade deal with the U.S. while downplaying the significance of the looming deadline. "Beyond tariffs and the rush to close the art of the deal, one continuing theme that we see in Asia and many countries outside the U.S. is the acceleration in moves to diversify away from or at least hedge with the U.S.," MUFG said in a note. In addition to the wait for a trade agreement with the U.S., foreign portfolio outflows have been a pain point for the rupee with overseas investors pulling out about $500 million from local stocks over July so far. KEY INDICATORS: ** One-month non-deliverable rupee forward at 86.60; onshore one-month forward premium at 12.50 paisa ** Dollar index up 0.1% at 97.58 ** Brent crude futures up 0.5% at $69.5 per barrel ** Ten-year U.S. note yield at 4.4% ** As per NSDL data, foreign investors sold a net $382mln worth of Indian shares on July 23 ** NSDL data shows foreign investors sold a net $41.7mln worth of Indian bonds on July 23
Yahoo
an hour ago
- Yahoo
India's equity benchmarks to open flat as market weighs UK trade pact
(Reuters) -India's equity benchmarks are expected to open little changed on Friday as investors weigh the newly signed trade pact with Britain, which will cut tariffs of goods ranging from textiles to whisky and cars. The Gift Nifty futures were trading at 24,993.5 points as of 8:04 a.m. IST, indicating that the Nifty 50 will open near Thursday's close of 25,062.1. "Signing of the India-UK FTA, which is expected to boost bilateral trade by about $34 billion annually, is hugely significant in the present context when India is eager to reach a deal with the U.S. on trade and tariffs," said VK Vijayakumar, chief investment strategist at Geojit Investments. Shares of textiles, automakers, leather, footwear and other companies will be in focus as UK exports become duty-free. While the India-UK agreement should boost sentiment, the market is unlikely to see major upside until there is clarity on U.S. trade negotiations, analysts said. India is making "fantastic" progress in talks with Washington, Commerce Minister Piyush Goyal told Reuters on Thursday, but played down the importance of deadlines. Earlier this week, two Indian government sources said prospects for an interim deal before U.S. President Donald Trump's August 1 deadline had dimmed amid deadlock over tariff cuts on key agricultural and dairy products. STOCKS TO WATCH ** Bajaj Finance beat analysts' estimate for quarterly profit on Thursday, as healthy loan growth countered a decline in the non-bank lender's asset quality ** Indian Energy Exchange posts higher revenue and profit for the first quarter, driven by a nearly 15% increase in electricity volume. The stock tanked about 30% on Thursday on the regulator's market coupling norms ** SBI Life Insurance posts higher profit in June quarter, thanks to healthy premiums from policy renewals Sign in to access your portfolio
