RBI Plans Overnight Variable Rate Repo Auction to Inject ₹50,000 Crore Amid GST Payments

The Reserve Bank of India (RBI) has announced plans to conduct an overnight variable rate repo (VRR) auction to inject ₹50,000 crore into the banking system. According to news reports, the move is aimed at addressing liquidity tightness arising from GST payments outflows and maturing Variable Rate Reverse Repo (VRRR) amounts, ensuring smooth money market operations during the transitional period.

Strategic Timing Addresses GST Payment and VRRR Maturity Overlap

According to the report, the RBI wants to avoid liquidity tightness amid GST outflows, with VRRR amounts maturing on Friday, whilst GST payments ended on Wednesday. This timing creates potential for a one-day liquidity crunch, prompting preemptive action to maintain system stability. Net banking system liquidity stood at ₹2.98 trillion surplus on Tuesday, according to the latest RBI data.

Money Market Rates Signal Operational Pressures

Recent VRRR Operations Show Strong Bank Participation

The RBI received bids worth ₹1.82 trillion against the notified ₹2 trillion at its eight-day VRRR auction on August 14, as banks rolled over maturing amounts from earlier auctions conducted on August 8 and 11. The central bank accepted bids at a 5.49% cut-off rate, with VRRR operations designed to absorb surplus liquidity and anchor short-term rates closer to the policy repo rate.

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July Precedent for VRR Operations During Rate Pressures

The RBI conducted two variable rate repo auctions in July when overnight rates traded near the marginal standing facility (MSF) rate. The current weighted average call rate (WACR) of 5.47% represents the operating target of monetary policy, showing 4 basis 4-basis-point increase from the previous session's 5.43%, indicating emerging rate pressures requiring intervention.

Liquidity Corridor Management and Policy Implementation

The MSF rate serves as the ceiling of the liquidity adjustment facility corridor at 25 basis points above the 5.5% policy repo rate, whilst the standing deposit facility (SDF) provides the floor at 25 basis points below. This framework ensures money market rates operate within defined bounds, with VRR operations providing additional flexibility for fine-tuning liquidity conditions.

Conclusion

RBI's overnight VRR auction to infuse ₹50,000 crore demonstrates proactive liquidity management addressing GST payment outflows and VRRR maturity timing. 

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