According to market dealers, the banking system's liquidity surplus, as measured by cash held by lenders with the central bank, increased to more than a two-month high of Rs 91,225 crore due to government spending and the maturity of government assets. In the current fiscal year, the liquidity surplus reached its highest level since April 18.
"The reasons are government expenditure and the redemption of government securities worth around Rs 60,000 crore," claimed a dealer at a primary dealership.
"The surplus liquidity will remain in the range of Rs 60,000 crore to Rs 80,000 crore in the near term," he said. As a result, the yield on three- and six-month treasury bills declined by two basis points, while On the 364th day, it fell by one basis point compared to the previous week. Market participants stated that the Reserve Bank of India will continue to use Variable Rate Repo (VRR) and Variable Rate Reverse Repo (VRRR) auctions to adjust liquidity conditions.
"The RBI would intervene through VRRR auctions because they wouldn't want money market rates to remain below the repo rate," said a trader at a large state-owned bank. "Some more redemption is lined up during the month, so we expect the RBI to intervene," he noted. Government securities totaling Rs 60,944 are set to maturity on July 28. The weighted average money market rate fell to 6.35 percent on Wednesday as liquidity strengthened. The repo rate is now at 6.50 percent.
The RBI held a two-day VRRR auction on Wednesday. During the auction, banks stored Rs25,145 crore against the authorized amount of Rs 50,000 crore at a weighted average rate of 6.49 percent. So far this week, the central bank has conducted three VRRR auctions totaling Rs 2 trillion. Banks have set aside Rs 67,572 crore against the stated amount. Liquidity Surplus climbs to two-month high on government spending and redemption. According to market dealers, the banking system's liquidity surplus, as measured by cash held by lenders with the central bank, increased to more than a two-month high of Rs 91,225 crore due to government spending and the maturity of government assets. In the current fiscal year, the liquidity surplus was the biggest since April 2018.
"The surplus liquidity will remain in the range of Rs 60,000 crore to Rs 80,000 crore in the near term," he said. As a result, the yield on 3-month and 6-month treasury notes declined by two basis points, while the yield on the 364-day fell by one basis point, compared to last week. Market participants stated that the Reserve Bank of India will continue to use variable rate repo (VRR) and variable rate reverse repo (VRRR) auctions to adjust liquidity conditions. "The RBI would intervene through VRRR auctions because they wouldn't want money market rates to remain below the repo rate," said a trader at a large state-owned bank. “Some more redemption is lined up during the month, so we expect the RBI to intervene,”he added.
The Reserve Bank of India held a two-day VRRR auction on Wednesday. During the auction, banks stored Rs 25,145 crore against the notified amount of Rs 50,000 crore at a weighted average rate of 6.49 percent. The central bank performed three VRRs.
