
The Reserve Bank of India (RBI) is planning to infuse Rs 1 trillion into the banking system through a 13-day Variable Rate Repo (VRR) auction on Friday. This action is in response to a widening liquidity deficit, which reached Rs 2.51 trillion as per the latest data from the central bank.
A variable rate refers to an interest rate or payment that fluctuates over time based on certain factors or benchmarks. The term “variable rate” can be applied to various financial products and arrangements.
Persistent Liquidity Deficit:
Despite several VRR auctions conducted by the RBI since February 8, the banking system continues to face a persistent liquidity deficit, which has been largely around Rs 2 trillion during this period.
Impact of Previous Measures:
Earlier in February, when the liquidity deficit had eased to Rs 1 trillion, overnight money market rates had dropped below the repo rate. To address this, the RBI initiated a series of variable rate reverse repo auctions to align the rates with the repo rate.
Conclusion:
The RBI’s ongoing efforts to manage liquidity aim to stabilize the banking system and ensure that market rates remain aligned with the repo rate, thereby maintaining stability in the financial markets.