India’s central bank has skipped its regular liquidity management tool – the 14-day variable rate reverse repo for the second consecutive time- and announced a liquidity infusion instead.
The Reserve Bank of India will conduct a seven-day variable rate repo auction worth 1.25 trillion Indian rupees ($15.03 billion) on Dec. 29.
It said, “On a review of current and evolving liquidity conditions, it has been decided to conduct a Variable Rate Repo auction in lieu of the main operation.”
Earlier in the day, Reuters reported that the central bank may partially rollover maturing repos.
Variable rate repos aggregating 2.25 trillion rupees are due to mature on Dec. 29, the quarter’s last working day.
This would be the fourth such repo infusion in two weeks, as banking system liquidity continues to stay in deficit, with liquidity touching levels last seen eight years ago.
The banking system liquidity shortfall has constantly stayed above two trillion rupees since the last few days, while the daily average banking system liquidity deficit in December rose to 1.01 trillion rupees, the highest since May 2016
Despite the repo infusion last week, the weighted average interbank call money rate has stayed comfortably above the Marginal Standing Facility rate of 6.75% in the last few days.
Banks expect the RBI to continue more short-term cash infusions through March.
Market participants expect strong bidding interest for Friday’s repo. ($1 = 83.1570 Indian rupees)
