The Reserve Bank of India (RBI) on Monday conducted another variable rate repo auction in an attempt to infuse short-term liquidity into the system.
The RBI held an overnight variable rate repo auction for a notified amount of Rs 75,000 crore.
While the auction saw the central bank receiving bids worth Rs 1,37,105 crore, it fixed a cut-off rate of 4.12 per cent which is above the repo rate of four per cent.
In a repo auction, the RBI infuses liquidity into the system whereas in a reverse repo auction, it sucks out surplus funds.
Last week, the central bank had conducted a 3-day variable rate repo auction of Rs 75,000 crore where the cut-off rate was fixed at 4.09 per cent and an overnight auction of Rs 50,000 crore, where the cut-off rate was set at 4.06 per cent.
This was in response to inter-bank call money rates rising above four per cent as higher GST collections — which leads to outflows from the banking system — caused a temporary shortage among some lenders.
In December, the central bank had said that the 14-day variable rate reverse repo (VRRR) auction will be re-established as the main liquidity management operation.
According to the central bank, it has been re-balancing the surplus liquidity in the system by shifting it out of the fixed rate overnight reverse repo window into the VRRR auctions that are of a longer maturity.
Reverse repo auction
In a separate announcement, the RBI said it will conduct a 3-day VRRR auction of Rs 2 lakh crore on January 25 and a 25-day VRRR auction of Rs 50,000 crore on the same day.
Meanwhile, yields on the benchmark 10-year government security continued to trade firm and closed at nearly 6.65 per cent against the previous close of 6.62 per cent.