RBI Variable Rate Repo Auction: RBI to hold variable rate repo auction to infuse Rs 75,000 crore

Mumbai: The Reserve Bank of India (RBI) Thursday announced a ₹75,000 crore 45-day variable rate repo (VRR) auction, which will be held on Friday. This VRR will be reversed on April 7, just two days before the central bank announces its next monetary policy.

This announcement for the VRR to be conducted at noon Friday comes on the day RBI received four times more bids under the bond purchase programme – or the open market operations (OMO) – the last among a host of liquidity infusion measures announced on January 27.

It received bids worth ₹1.87 lakh crore against the notified amount of ₹40,000 crore.

In a parallel development, the RBI did not accept bids for the 91-day and 182-day treasury bills at an auction held on Thursday. However, it accepted ₹7,000 crore worth of bids for the 360-day auction at 6.5638%.

Market participants said they expected the RBI to announce liquidity support measures since system liquidity continues to be in deficit.

“The core deficit could be ₹1.2 lakh crore by the end of this year if the RBI does not announce any durable liquidity infusion measures. We expect the RBI to announce OMO of around ₹80,000 crore by March 2025,” said Gaura Sengupta, economist at IDFC First Bank.RBI did not accept bids for a 91-day auction for a notified amount of ₹14,000 crore and 182 days for ₹12,000 crore. The decision on T-bill rejection can be viewed from two perspectives.Less Short-Tenor Demand?
“The RBI may be hesitant to squeeze liquidity further, considering the current tight liquidity conditions. Also, the government may be expecting a short-term surplus in the next month, driven by GST flows and advance tax payments. In this scenario, the government may not need to borrow for short tenors, making the rejection of short-term T-bill bids a strategic move,” said VRC Reddy, head of treasury at Karur Vysya Bank.

The RBI has taken multiple measures to infuse liquidity in the system, including bond purchases, long-term VRR auctions, and $5 billion of USD/rupee buy/sell swaps.

The initial bond purchase or the OMO was in three tranches totalling ₹60,000 crore, which was raised to ₹1 lakh crore. It conducted ₹50,000 crore 56-day VRR and ₹75,000 crore 49-day VRR -both will mature on April 4, just a few days before the next monetary policy announcement scheduled on April 9.

The bank also conducted screen-based OMOs for ₹59,000 crore.