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RBI's 3-day VRRR sees weak demand amid GST outflows, reporting week
Market participants said banks were reluctant to park higher amounts at the auction due to the fortnightly reporting cycle at the end of the current week and uncertainty over the quantum and tenor of upcoming VRRRs. With ₹1.5 trillion already parked at the seven-day VRRR auction on Friday, banks appeared hesitant to lock in additional funds.
'The demand was low because it's a fortnight, and there is uncertainty around how many more VRRRs will be conducted and for what tenure,' said a dealer at a state-owned bank. 'Banks parked ₹1.5 trillion on Friday; they were not willing to lock in more funds,' he added.
'The liquidity surplus is now near ₹2.5 trillion, and overnight rates inched up today (Tuesday),' said a dealer at a primary dealership. 'Banks would like to keep some surplus with them ahead of GST outflows,' he added.
The overnight Weighted Average Call Rate (WACR) was trading at 5.38 per cent, compared to the previous day's close of 5.31 per cent. The overnight triparty repo (TREPS) rate was trading at 5.30 per cent, up from 5.19 per cent on Monday.
WACR is the operating target of the monetary policy, which the central bank aims to keep close to the policy repo rate.
A net surplus liquidity of around ₹3 trillion in the banking system has largely kept the overnight WACR near the Standing Deposit Facility (SDF) rate of 5.25 per cent and below the repo rate of 5.50 per cent, with TREPS rates also slipping below the SDF.
The RBI conducts VRRR operations to absorb surplus liquidity from the banking system and anchor short-term interest rates closer to the policy repo rate.
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