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Informist, Wednesday, Jan. 15, 2025

--RBI: To hold daily variable rate repo auctions until further notice

--RBI: Daily VRR auctions to reverse on next working day

--RBI: To decide size of daily VRR auctions on assessment of liquidity

--RBI: To hold 1-day, INR 500-bln VRR auction 1000-1030 IST on Thu

--RBI: Standalone PDs can participate in daily VRR auctions

MUMBAI – Days after market participants asked the Reserve Bank of India to provide adequate liquidity support, the central bank followed through, announcing late Wednesday that it would hold variable rate repo auctions on every working day starting Thursday "until further notice".

"On a review of current and evolving liquidity conditions, it has been decided to conduct Variable Rate Repo auctions on all working days in Mumbai with reversal taking place on the next working day, until further notice. The reversal of VRR auction conducted on a Friday will take place on the ensuing Monday or the next working day, if Monday is a holiday in Mumbai," the RBI said in a statement.

The auctions, where standalone primary dealers have been permitted to participate, will be conducted between 1000 IST and 1030 IST starting with one for INR 500.00 billion on Thursday. However, the RBI said the size of the auctions will be decided based on its assessment of liquidity conditions and will be announced separately.

The announcement of what is essentially a daily variable rate repo window--at least until further notice--fulfils some demands made by treasury heads of banks and primary dealers at a meeting with RBI officials last week. Informist reported on Friday, quoting market sources, that the central bank was asked to ease the persistent cash crunch in the banking system.

While market participants had sought the injection of durable liquidity through another cut in the Cash Reserve Ratio or open market purchase of government bonds as well as long-term dollar-rupee buy/sell swap auctions, treasury officials had also said consistent and larger variable rate repo operations could work as a stopgap measure. Standalone primary dealers, who have no access to either the Marginal Standing Facility or variable rate repo and reverse repo operations, had also asked for a liquidity backstop facility.

According to the latest RBI data, the central bank injected a net INR 2.09 trillion into the banking system on Tuesday, double the sum it had infused at the start of the month. The RBI conducted 14-day and 4-day variable rate repo auctions on Friday, where banks borrowed a total of INR 2.75 trillion. On Monday, another 4-day auction was held where banks borrowed INR 500.08 billion. While no auction was held on Tuesday, Wednesday's 5-day variable rate repo tender for INR 750.00 billion saw little demand, with only INR 39.80 billion being borrowed.

The announcement of the daily variable rate repo auctions comes ahead of the Monetary Policy Committee's meeting early next month. In December, the RBI had cut the CRR by 50 basis points to 4.00% of banks' net demand and time liabilities in a two-step move. However, the infusion of INR 1.16 trillion of liquidity from the CRR cut has proved to be insufficient to ease conditions.  End

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Reported by Srijita Bose and Siddharth Upasani

Edited by Saji George Titus

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