RBI increases 14-day VRRR amount in December to shift out of overnight auctions

Given request for recognition remains subdued, indebtedness rates connected products similar location loans could enactment debased successful a competitory environment.

By Manish Suvarna

The Reserve Bank of India (RBI) has accrued the magnitude of adaptable complaint reverse repo (VRRR) auctions successful December, arsenic it is shifting retired of the fixed-rate overnight reverse repo auction and re-establishing VRRR arsenic the main liquidity absorption operations. The magnitude nether the 14-day VRRR auctions connected a fortnightly ground has been accrued to Rs 6.5 lakh crore for December 17 and further to Rs 7.5 lakh crore for December 31. While from January 2022 onwards, liquidity absorption volition beryllium undertaken chiefly done the auction route.

“The Reserve Bank volition proceed to rebalance liquidity conditions successful a non-disruptive manner, portion maintaining capable liquidity to conscionable the needs of the productive sectors of the economy,” RBI Governor Shaktikanta Das said successful a argumentation note.

He besides said that the operations of 14-day VRRR would proceed to beryllium complemented by longer-term VRRRs, the size and maturities of which volition beryllium decided based connected continuous assessment. The size and magnitude of liquidity fine-tuning operations volition beryllium accrued arsenic and erstwhile required.

Since October’s argumentation statement, RBI has undertaken 14-day VRRR auctions connected a fortnightly ground and it had planned to retreat liquidity worthy Rs 4 lakh crore connected October 8, station which the magnitude has accrued by Rs 50,000 crore successful each auction till December 3. The cardinal slope reiterated that it is committed to undertake Operation Twists (OT) and regular unfastened marketplace operations (OMOs) arsenic whitethorn beryllium required for effectual monetary transmission and anchoring yields.

Market participants expect the dense liquidity withdrawal from the strategy volition propulsion overnight rates adjacent to repo rate, this would mean that accrual returns connected a precise short-term, debased marketplace hazard products similar overnight and liquid funds could emergence successful the coming months. “Investors should expect that involvement rates connected some deposits rates and lending rates volition emergence successful the coming year, albeit gradually,” said Pankaj Pathak, money manager, Fixed Income astatine Quantum Asset Management.