Banks park INR 4.3 trillion in INR 5 trillion variable rate reverse buyback close

Banks park INR 4.3 trillion in INR 5 trillion variable rate reverse buyback close

From this year, the central bank has moved to variable rate reverse repo auctions, instead of fixed rate auctions. This has meant that the reverse repo rate of 3.35 per cent is no longer very relevant. The auction cut-offs of variable rate reverse repo are also coming near the repo rate in line with the central bank’s plan to move towards a policy rate regime where the rate difference between liquidity absorption and infusion is narrowed to just 25 basis points (it is now at 65 bps).

Banks on Friday parked Rs 4.31 trillion of their excess funds with the Reserve Bank of India (RBI) at a cut-off of 3.99 percent, practically contacting the repo rate, showing the currency market rates won’t fall in a rush even as the RBI backs off of its liquidity absorption mode. The central bank had amazed the bond market by reporting a Rs 5 trillion variable rate reverse repo (VRRR) sell off, rather than a normal Rs 8 trillion sale, as the economy endured dislocations because of the continuous Omicron surge.

The 10-year bond yields closed at 6.58 per cent, up by 2 basis points from its previous close.

Meanwhile, the rupee lost against the dollar and closed above 74 level. The Indian currency closed at 74.15 a dollar, from its previous close of 73.90.

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