With an eye on inflation and surplus liquidity in the system, the RBI announced variable rate reverse repo (VRRR) auctions of Rs 2 lakh crore with a maturity of 14 days.
The apex bank had recommenced VRRR auctions since January 15. The latest auction will be conducted on Friday, April 9 with date of reversal being April 23.
The fresh VRRR is being launched as indicated in the Revised Liquidity Management Framework announced on February 6, 2020.
It would be worthwhile to note that despite the recommencement of 14-day VRRR auctions since early 2021, liquidity absorbed through the fixed rate reverse repo has steadily increased from a fortnightly average of Rs 4.3 lakh crore during January 16-29 to Rs 4.9 lakh crore during January 30-March 31 this year.
Also, the surplus liquidity has been reflected with reserve money rising by 14.2 per cent (YoY) as on March 26, driven by currency demand, while money supply (M3) growing by 11.8 per cent (YoY) (as on March 26), with bank credit growth at 5.6 per cent (YoY) (as on March 26).
After the monetary policy committee meeting (MPC) on Wednesday, RBI Governor Shaktikanta Das had announced launch of a new VRRR with a longer tenor than present 14 days.
“In view of the success of VRRR and given the rising level of surplus liquidity, it has now been decided to conduct VRRR auctions of longer maturity. This is a part of RBI’s liquidity management operations and should not be read as liquidity tightening,” Das had said.
The details of this VRRR will be worked out later.