The Reserve Bank of India conducted two variable rate repo (VRR) auctions on Friday to infuse liquidity in the banking system as overall liquidity deficit widened.

This came after the central bank had conducted six fine-tuning variable rate reverse repo (VRRR) auctions on during February 2-7, 2024 to absorb surplus liquidity from the banking system. This included two one-day VRRR auctions on February 6 and 7.

• CY2024’s first VRR auction sees huge demand for funds from Banks

At the first 14-day VRR auction, the RBI received bids from banks to draw down funds aggregating Rs 2.42 lakh crore against the notified amount of Rs 1.75 lakh crore. The central bank allotted funds amounting to Rs 1,75,008 crore at a weighted average rate of 6.73 per cent.

The RBI had on Thursday announced that it would conduct the aforementioned auction. However, on Friday, it decided to conduct one more VRR auction after reviewing the current and evolving liquidity conditions.

At the second VRR auction, which was of 3-day duration, the RBI received bids from banks to draw down funds aggregating ₹35,120 crore against the notified amount of ₹40,000 crore. The central bank allotted funds amounting to ₹35,120 crore at a weighted average rate of 6.66 per cent.

The overall banking system’s liquidity deficit widened to ₹1,95,561 crore as on February 9 against ₹1,53,035 crore on February 8.

RBI Governor Shaktikanta Das, in his monetary policy statement on Thursday, reiterated that that the policy stance is in terms of interest rate which is the principal tool of monetary policy in the current framework.

“Our stance of withdrawal of accommodation should be seen in the context of incomplete transmission and inflation ruling above the target of 4 per cent and our efforts to bring it back to the target on a durable basis.

“So far as liquidity conditions are concerned, these are being driven by exogenous factors, which are likely to correct in the foreseeable future, aided by our market operations,” he said.

Das emphasised that the Reserve Bank remains nimble and flexible in its liquidity management through two-way main and fine-tuning operations, in both repo and reverse repo.

“We will deploy an appropriate mix of instruments to modulate both frictional and durable liquidity so as to ensure that money market interest rates evolve in an orderly manner and financial stability is maintained,” he said.