New Delhi, September 8: The Reserve Bank of India (RBI)’s efforts to mop up surplus liquidity in the markets has hit a roadblock, with just ₹2.59 lakh crore mopped up through the variable rate reverse repo (VRRR) auction, just half of the target. This comes after the banking system now has an unprecedented ₹11.16 lakh crore liquidity, strengthened by the better-than-expected mop-ups from the FCNR(B) scheme for NRI investors.
The RBI held 30 day auctions for the VRRR through its e-Kuber portal. However, a technical glitch disrupted the bidding process, with banks and other participants caught unawares whether their bids went through.
As a result, the 30 day auction mopped up just half of the targeted ₹5 lakh crore, even as it extended the deadline overnight. Besides this, banks remained reluctant to lock away funds through the VRRR for a month, resulting in much lower absorption.
Lenders are also adopting a cautious stance, as anticipated outflows for the upcoming Goods and Services Tax (GST) and advance tax payments are expected to drain liquidity from the system in the coming days.
Besides ironing out the technical challenges with its e-Kuber platform, the RBI has to make a delicate balancing act as it has to let in foreign inflows to boost macroeconomic stability, yet it has address the liquidity problem in the domestic market.
Besides the VRRR auctions, analysts expect the RBI to use buy/sell foreign exchange swaps to absorb excess rupee liquidity. Moving ahead, the RBI aims to maintain the repo rate, as a part of maintaining the integrity of its monetary policy framework.
