RBI absorbs Rs 75,026 crore through VRRR auction amid surplus liquidity

The RBI absorbed Rs 75,026 crore through an overnight VRRR auction as surplus liquidity in the banking system remained high. Banks submitted bids worth Rs 87,993 crore, while the central bank continued using VRRR auctions and OMO sales to manage excess liquidity

Mumbai: The Reserve Bank of India (RBI) absorbed Rs 75,026 crore from the banking system through an overnight variable rate reverse repo (VRRR) auction on Wednesday as it continued efforts to manage excess liquidity and keep short-term money market rates aligned with the policy repo rate.

According to the RBI, the auction attracted strong demand from banks, with bids worth Rs 87,993 crore received against the notified amount of Rs 75,000 crore.

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However, the central bank accepted bids worth Rs 75,026 crore. The cut-off rate and weighted average rate for the auction stood at 5.24 per cent.

The move comes as liquidity conditions in the banking system remain significantly comfortable. RBI data showed that surplus liquidity stood at around Rs 4.45 lakh crore as of September 22, prompting the central bank to continue using liquidity absorption tools to moderate excess cash in the financial system.

The RBI has been conducting a series of VRRR auctions since last month to absorb surplus funds from banks and ensure overnight rates remain closer to the benchmark repo rate.

The central bank has also supplemented these measures through open market operation (OMO) sales of government securities.

As part of its liquidity management strategy, the RBI conducted OMO sales worth Rs 50,000 crore on September 17 and another Rs 25,000 crore on September 21.

Under an OMO sale, banks and other investors purchase government securities from the central bank, resulting in a withdrawal of rupee liquidity from the banking system.

The central bank had earlier announced OMO sales totaling Rs 1 lakh crore in three tranches to tackle prevailing liquidity conditions. The final tranche of Rs 25,000 crore is scheduled to be conducted on September 28.

Analysts said liquidity in the banking system has been boosted by substantial mobilisation of Foreign Currency Non-Resident (Bank) [FCNR(B)] deposits by banks.

The inflows brought foreign currency into the system, while subsequent swaps with the RBI injected rupee liquidity into banks. In addition, government spending towards salaries, pensions and other month-end expenditures has further added to liquidity levels.