We saw quite a tepid response in today’s 3 Days VRRR auction which indicates that banks are alert with respect to liquidity issues. Participation has been as low as 20%.
In this VRRR roll over, market received net inflow of INR 659.33 Billion but its participation in the VRRR was lower than what it received. TREPS and Call Money rates have come down below repo rate.
We could see reduction in SDF from INR 1.61Trillion to INR 597.61 Billion (Yesterday). There has been significant reduction in SDF volume since 30th June 2023 which was increased earlier due to deposit of INR 2000 notes with banks for the said month, which I had mentioned in my previous post.
But later due to reduced liquidity that can be seen from SDF volume and spike in overnight rates, Overnight rates were traded above MSF rates yesterday.
Hence, Banks will continue to be extremely cautious with respect to liquidity.
