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Business Standard
08-07-2025
- Business
- Business Standard
RBI to conduct 2-day VRRR auction to drain Rs 1 trillion in liquidity
The Reserve Bank of India (RBI) plans to conduct a two-day Variable Rate Reverse Repo (VRRR) auction on Wednesday for a notified amount of Rs 1 trillion. This move comes as system liquidity remains in surplus at Rs 3.4 trillion (as of Monday), despite two seven-day VRRR auctions by the central bank. The surplus liquidity has kept the overnight weighted average call rate (WACR) — the operating target of monetary policy — near the Standing Deposit Facility (SDF) rate of 5.25 percent, and much below the repo rate of 5.50 percent. 'System liquidity will only increase from here as government expenditure picks up, and from September, the CRR cut will come into effect. This could push liquidity levels to as high as Rs 5 trillion by November–December, assuming neutral impact from foreign exchange operations. So, they had to move early to ensure overnight rates remain within the policy corridor. This operation will shift the weighted average call rate closer to the repo rate and, more importantly, pull the TREPS rate above the SDF, which it had consistently fallen below despite previous 7-day VRRRs,' said Gaura Sen Gupta, Chief Economist at IDFC FIRST Bank. 'The 100 bps CRR cut will release Rs 2.5 trillion into the banking system.' The overnight WACR settled at 5.26 percent on Tuesday, while the overnight TREPS rate settled at 5.13 percent. Market participants said that the auction, maturing on Friday, is expected to draw strong demand from banks. 'Because it's a two-day VRRR, it will attract good demand from banks. The RBI may continue such short-tenure operations as long as surplus remains above 1 percent of NDTL. With overnight rates currently trading below the repo rate, the central bank is using VRRRs to keep rates within the LAF corridor, ensuring orderly liquidity conditions without aggressively draining surplus,' said V R C. Reddy, head of treasury at Karur Vysya Bank. The RBI's VRRR operations are aimed at absorbing surplus liquidity from the system and anchoring short-term rates closer to the policy repo rate. The RBI had received bids amounting to Rs 1.70 trillion at its seven-day Variable Rate Reverse Repo (VRRR) auction on Friday, against the notified amount of Rs 1 trillion. The central bank accepted Rs 1 trillion at a cut-off rate of 5.47 percent. The recent liquidity surplus can largely be attributed to higher government spending and lower-than-expected GST collections, which have eased the usual liquidity pressures. As a result, the liquidity drain was not as sharp as anticipated, experts said, adding that with the RBI already having reduced the Cash Reserve Ratio (CRR), its room for deploying other measures for liquidity withdrawal apart from VRRR is limited.
Business Recorder
04-07-2025
- Business
- Business Recorder
India's $700 billion plus FX reserve pile, leaner forward book bolster rupee shield
MUMBAI: India's foreign exchange reserves topped $700 billion last week to hit a 9-month high, which, alongside the central bank's shrinking forward book, cements the rupee's defences at a time when U.S. trade policy uncertainty looms, analysts said. Economists assess the Reserve Bank of India's (RBI) capacity to intervene in the foreign exchange market by evaluating its foreign exchange reserves and forward book positions, both of which are on a healthy trajectory. India's foreign exchange reserves rose to $702.8 billion as of June 27, up $4.9 billion week-on-week, as per data released on Friday. The reserves had declined to a multi-month low of $624 billion in late January but have now recovered to within touching distance of their all-time high hit last year. At the same time, the RBI's short-dollar position in the forward market, which had risen to a record $88.7 billion in February, declined to $65.2 billion by May. The data is released with a one-month lag. Substantial short positions in the forward dollar book offset some of the cushion offered by headline FX reserves, since they imply future commitments that could drain the reserves. Indian rupee ends week little changed, looming tariff deadline in focus The RBI's forward book shrank by $19 billion over April and May, while its net dollar selling during the same period was just $3.2 billion. This suggests the RBI is allowing a portion of the forward book to unwind and is offsetting the impact on rupee liquidity and FX reserves by purchasing dollars in the spot market, said Gaura Sen Gupta, an economist at IDFC First Bank. 'The reduction in forward book size and sufficient FX reserves are a positive for the INR. It increases the RBI's ability to intervene if required,' Sen Gupta said. The RBI intervenes in foreign exchange markets to curb excessive volatility. The central bank did not respond to an email seeking comment. The rupee is among emerging market currencies that have experienced heightened volatility since April 2, when U.S. President Donald Trump announced sweeping tariffs, only to pause the steep hikes for 90 days. U.S. and Indian trade negotiators are pushing to finalise a trade deal before the July 9 deadline, and a failure could heighten volatility for the rupee. A change in the composition of the RBI's forward book towards more onshore positions than non-deliverable forwards is one more positive for the rupee, according to analysts. Positions in the non-deliverable forward market, unlike their onshore counterparts, are typically concentrated in near-tenors and need to be rolled over frequently, adding to volatility. This shift 'reduces the pressure on the RBI to unwind the short dollar positions very aggressively,' Abhishek Upadhyay, an economist at ICICI Securities Primary Dealership, said in a note. 'Any decision to unwind the book should be based on balance of payment flows to ensure optics of FX reserves is managed well.'
Indian Express
04-07-2025
- Business
- Indian Express
US' 1% remittance tax to have limited impact on India, but adds to cost of transfers
Sending money back home for Indians and other expatriates working in the US will possibly get a little more expensive after American lawmakers in the Senate on Tuesday and the House of Representatives on Thursday narrowly passed President Donald Trump's 'big, beautiful' spending bill containing a proposal to impose a new 1 per cent tax on remittances. The 1 per cent tax on remittances in the One Big Beautiful Bill Act (OBBBA) will come into effect from January 1, 2026. Originally proposed as a 5 per cent tax on non-commercial money transfers sent overseas, the rate was cut to 3.5 per cent and finally to 1 per cent. Crucially, the version passed by the Senate made some important exclusions which can soothe the pain. For one, the tax only applies to remittances sent using cash, money orders, cashier's checks, or where the sender provides 'any other similar physical instrument' to service providers. This means, the tax – which will only apply to transfers of more than $15 – will not be levied on transfers made through bank accounts or US-issued debit and credit cards. The tax will also not apply if the sender can prove US citizenship. According to Gaura Sen Gupta, Chief Economist at IDFC FIRST Bank, the impact of the tax on money sent to India is likely to be distributional in in 2025-26, with remittances 'frontloaded and more concentrated' in the first three quarters of the fiscal given that the tax will only come into effect in January 2026. 'But the fact that it's a much lower rate than what was proposed earlier means the impact should be limited,' Sen Gupta added. Meanwhile, US-based non-profit Center for Global Development estimates India stands to lose slightly less than $500 million in formal remittances due to the US imposing the tax, only second to Mexico, which faces a hit of more than $1.5 billion. A tax on remittances can be a big headache for India given that it is the top recipient country. According to the latest data released by the Reserve Bank of India (RBI) last week, personal transfers from abroad in 2024-25 were up 16 per cent from the previous year at $124.31 billion on a net basis. In gross terms, they were up 14 per cent at $132.07 billion. Of course, not all of India's remittances come from the US. However, the world's largest economy is the biggest source, accounting for 27.7 per cent of remittances India received in 2023-24, as per the RBI's latest remittances survey. Given that the gross personal transfers in 2023-24 stood at $115.55 billion, India got roughly $32 billion from the US that year. What is worth noting here is not so much the amount of remittances from the US but the fact that a larger and larger share of the money India gets from abroad is coming from the US. Back in 2016-17, the US' share of remittances into India was 22.9 per cent. The importance of remittances India receives cannot be overstated: in 2024-25, not only did net remittances fully cover the country's goods and services trade deficit of $98.39 billion, but there was another $26 billion or so left after doing so. Even if remittances into India from the US don't decline by much, the tax represents a new hurdle for cross-border payments. But just how costly is it to send money into India? According to the World Bank, the average cost of sending $200 to India in October-December 2024 was 5.3 per cent compared to the global average of 6.6 per cent. The cost of making international payments rises depending on the number of intermediaries, or correspondent banks, involved, with fees being charged and operational delays possible at every stage. These costs and delays have been a key driver of central banks exploring the use of their digital currencies to make cross-border transfers. Another route to cut down on time and cost inefficiencies in current cross-border payments has been the linking of national instant payment systems, something which India has already started doing by connecting its Unified Payments Interface with Singapore's PayNow. Project Nexus of the Bank for International Settlements, a global organisation of central banks, takes matters to another level by focusing on 'cheaper, faster, more transparent and accessible' cross-border payments. The RBI joined Project Nexus last year. Siddharth Upasani is a Deputy Associate Editor with The Indian Express. He reports primarily on data and the economy, looking for trends and changes in the former which paint a picture of the latter. Before The Indian Express, he worked at Moneycontrol and financial newswire Informist (previously called Cogencis). Outside of work, sports, fantasy football, and graphic novels keep him busy. ... Read More
The Print
25-06-2025
- Business
- The Print
RBI announces 7-day reverse repo rate auction as liquidity enters surplus stage
India's banking system liquidity surplus stood at 2.44 trillion rupees as of June 23, as per RBI data. 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. Mumbai: 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 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) (Reporting by Siddhi Nayak; Editing by Vijay Kishore) This report is auto-generated from Reuters news service. ThePrint holds no responsibility for its content. Also Read: Jana Small Finance Bank Applies to RBI for Universal Banking License
Yahoo
24-06-2025
- Business
- Yahoo
India cenbank announces reverse repo to arrest fall in overnight rates
By Siddhi Nayak 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)
