This will only be the second VRR auction conducted by the RBI since February 2020. The previous VRR auction was conducted on February 10 for Rs 50,000 crore.
The liquidity deficit of the banking system had widened to over Rs 70,000 crore in February, with average daily liquidity also slipping into deficit on a monthly basis for the first time since May 2019.
Although liquidity, on a daily basis, was in surplus by around Rs 25,000 crore on March 8, it is expected to plunge into a deficit in the coming weeks due to the payment of Goods and Services Tax (GST). , among others.
“We could have close to Rs 2.5-3 lakh crore outflows to withholding tax and GST over the next fortnight, which may have compelled the RBI to double the quantum of VRR from the auction previous one,” said a trader at a private bank. .
The sharp squeeze on cash sent money market rates higher, with 364-day Treasury bills selling at higher yields than 10-year paper on Wednesday.
The central bank said it would continue to use floating rate repos and reverse repos as needed to help the market overcome temporary mismatches in liquidity conditions.