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MUMBAI: The Reserve Bank of India (RBI) will conduct a 14-day variable rate repo auction worth 500 billion rupees ($6.11 billion) on Friday, following a review of current and evolving liquidity conditions in the banking system, it said on Thursday.
The country’s banking system liquidity surplus has averaged over 550 billion rupees in May, but most of the surplus is in the hands of a few large banks, forcing most lenders to rely on inter-bank borrowing to meet cash requirements.
The central bank infuses liquidity in the banking system using repos and sucks it out using reverse repos. A 15-day reverse repo worth 84.47 billion rupees is due to mature on Friday.
Earlier this week, Reuters had reported, citing sources, that banks had informally asked the RBI to help manage liquidity.
“The repo auction at a time when liquidity has improved indicates that RBI dividend may not be very large, especially with what is getting factored into prices,” a trader with a private bank said.
Traders are pricing in a surplus transfer of around 1 to 1.5 trillion rupees to the government. The RBI board will meet on Friday to consider the dividend payment.
The country’s banking system liquidity surplus has averaged over 550 billion rupees in May, but most of the surplus is in the hands of a few large banks, forcing most lenders to rely on inter-bank borrowing to meet cash requirements.
The central bank infuses liquidity in the banking system using repos and sucks it out using reverse repos. A 15-day reverse repo worth 84.47 billion rupees is due to mature on Friday.
Earlier this week, Reuters had reported, citing sources, that banks had informally asked the RBI to help manage liquidity.
“The repo auction at a time when liquidity has improved indicates that RBI dividend may not be very large, especially with what is getting factored into prices,” a trader with a private bank said.
Traders are pricing in a surplus transfer of around 1 to 1.5 trillion rupees to the government. The RBI board will meet on Friday to consider the dividend payment.
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