The Reserve Bank of India (RBI) absorbed surplus liquidity amounting to Rs 44,430 crore on Tuesday through two variable rate reverse repo (VRRR) auctions with a three-day tenor. This amount was deployed by banks, even though the central bank was prepared to absorb up to Rs 1-lakh crore (notified amount).
In the first three-day VRRR auction for a notified amount of Rs 50,000 crore, banks deployed funds totalling Rs 41,730 crore. The central bank accepted these funds at a weighted average rate (WAR) of 6.48 percent.
In the second three-day VRRR auction, also for a notified amount of Rs 50,000 crore, banks deployed funds totaling Rs 2,700 crore. The central bank accepted these funds at a WAR of 6.49 percent.
Surplus liquidity
Meanwhile, the system liquidity surplus widened to Rs 28,800 crore, unadjusted for daily cash reserve ratio imbalances. This increase was primarily due to month-end government spending.
The RBI’s dividend payout announcement of Rs 2.1-lakh crore at the end of May, expected to be spent in early June and July, along with post-election government spending, is anticipated to support banking system liquidity. Additionally, lower currency in circulation in the coming months and consistent debt foreign portfolio investment flows are expected to further improve liquidity.
The net liquidity surplus is projected to average about 0.5-0.8 percent of net demand and time liabilities (NDTL) over the next three months, compared to the current deficit of approximately 0.7 percent of NDTL.
