The Reserve Bank of India (RBI) on Friday injected temporary liquidity of Rs 81,590 crore into the banking system through a three-day variable rate repo (VRR) auction. Temporary liquidity refers to temporary fluctuations in cash flows in a financial or banking system, while Variable Rate Repo (VRR) auction is a monetary instrument used by the RBI to inject short-term liquidity into the banking system.
RBI said that these funds were injected at the cut-off rate of 5.26 percent. Despite a sharp decline in the liquidity surplus in the banking system, the demand for funds remained less than the declared amount of Rs 1 lakh crore. However, compared to the previous auction held on May 21, there was more demand from banks in Friday’s auction.
Another VRR auction may be announced
At present, the liquidity surplus in the banking system is estimated to be around Rs 58,876.29 crore as of May 21, compared to Rs 1.51 lakh crore as of May 20. Due to this reduction in liquidity surplus, there has been a sharp rise in overnight call money rates. Money market experts believe that RBI may announce another VRR auction to handle the changing liquidity conditions. The Reserve Bank of India (RBI) on Friday injected temporary liquidity of Rs 81,590 crore into the banking system through a three-day variable rate repo (VRR) auction.
Despite a sharp decline in the liquidity surplus in the banking system, the demand for funds remained less than the declared amount of Rs 1 lakh crore. However, compared to the previous auction held on May 21, there was more demand from banks in Friday’s auction. At present, liquidity in the banking system is estimated to be in surplus of Rs 58,876.29 crore by May 21, whereas it was Rs 1.51 lakh crore on May 20.
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