RBI could have infused the liquidity of INR 40,000Cr till Saturday without any VRR auction which could have easily brought call rates near to repo rate. But on contrary RBI decided to roll over 14D VRRR for amounting INR 50,000Cr.
Now the liquidity flow coming out of partial 25% reversal (~25,000Cr) as scheduled from Saturday, was reduced by the amount parked on Friday’s 14D VRRR auction.
We have always seen some participation into VRRR, though muted sometime during tight liquidity situation. Hence, not rolling over this 14D VRRR was as good as conducting VRR of the equivalent value (INR 18,670Cr), this amount along with 25% I-CRR reversal was enough to bring down WAR of overnight rate to near repo level without conducting any VRR auction.
Liquidity situation is expected to improve gradually with in a week’s time post GST outflows but temporary relief through fine tuning operations have always been used to manage liquidity for such a short-term pain and would have provided a relief to market participants.
