The Reserve Bank of India will conduct another three-day Variable Rate Reverse Repo (VRRR) auction on Monday when it will aim to suck out up to Rs 2,00,000 crore.
The move is in line with the central bank’s stated policy as the RBI governor earlier hinted at unwinding excess cash through auctions.
Earlier in the week in a surprise move, it conducted a similar auction through which it removed Rs 81,160 crore liquidity from the system on December 20.
Besides, the central bank has been conducting four-day and seven-day auctions as well.
Short-term rates have already started moving up with the latest Treasury Bill auctions yielding 8-18 basis points higher than the cut-offs across three maturities about a week ago, RBI data showed.
RBI governor Shaktikanta Das in the December bi-monthly policy emphasised on auction route as a key to suck out cash from the system.
“The announcement now of shorter term VRRRs seems consistent with the apparent objective of making the auction route the predominant one for surplus liquidity absorption,” Suyash Choudhary, head of fixed income, IDFC Mutual Fund said on Wednesday.
Some of the dealers believe that a simple normalising of the corridor via hiking the reverse repo rate would have actually caused less volatility in money market rates and may have brought greater certainty to market participants.
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