The Reserve Bank of India (RBI), on Friday, said it will conduct a Variable Rate Reverse Repo auction of 14-day tenor, aggregating ₹2-lakh crore, on January 15, as part of its decision to restore normal liquidity management operations in a phased manner.
Through this auction, the RBI is seeking to suck out excess liquidity in the banking system, which, as on January 7, 2021, stood at ₹7,09,041 crore, going by the funds parked in the one-day reverse repo auction.
Marzban Irani, CIO-Fixed Income, LIC Mutual Fund, said: “The RBI is gradually sucking out liquidity. Short-term yields of money market papers, which are below reverse repo rate, will correct.”
The Variable Rate Reverse Repo auction is being conducted under the revised Liquidity Management Framework issued on February 6, 2020.
This framework was temporarily suspended in the backdrop of the outbreak of Covid-19, the rapidly evolving financial conditions, and taking into account the impact of disruptions due to the lockdown and social distancing.
However, the window for Fixed Rate Reverse Repo and Marginal Standing Facility (MSF) operations were made available throughout the day. This was intended to provide eligible market participants with greater flexibility in their liquidity management.
“On a review of evolving liquidity and financial conditions, it has been decided to restore normal liquidity management operations in a phased manner.
“...The Fixed Rate Reverse Repo and Marginal Standing Facility (MSF) operations will continue to be available throughout the day,” the central bank said.
The RBI reiterated that it will ensure availability of ample liquidity in the system.