The Reserve Bank of India plans a significant ₹2 trillion drain from the banking system via a seven-day variable rate reverse repo, highlighting persistent surplus cash despite recent tightening efforts.
The Reserve Bank of India plans to drain as much as ₹2 trillion from the banking system on Monday through a seven-day variable rate reverse repo auction, a move that underlines how much surplus cash remains in circulation even after recent tightening efforts. Business Standard reported that the central bank’s latest data showed banking system liquidity in a surplus of ₹3.61 trillion on Thursday, while the weighted average call rate eased to 5.09 per cent from 5.18 per cent previously.
A VRRR auction is one of the RBI’s main liquidity-absorption tools, allowing the central bank to temporarily park excess funds from banks without changing the policy rate itself. The standing deposit facility rate currently stands at 5 per cent and acts as the floor of the RBI’s policy corridor, with the repo rate in the middle and the marginal standing facility rate at the top.
The operation comes against a backdrop of shifting liquidity conditions. In June, CRISIL said the systemic surplus had moderated as the RBI net-absorbed ₹1.6 lakh crore on average, down from ₹3.8 lakh crore in April, with higher government cash balances, a steeper credit-deposit ratio and foreign portfolio investor outflows all adding pressure. CRISIL also noted that the RBI had used a $5 billion forex buy-sell swap auction with a three-year tenor to ease conditions, suggesting the central bank has been using several instruments to keep money-market rates aligned with policy.
Disclaimer: This article is intended to inform and educate, not to recommend or endorse any financial product, investment or strategy. Please consider your own financial circumstances and seek professional advice where appropriate before making financial decisions.
