RBI Injects Rs 1.41 Lakh Crore Liquidity to Counter Market Pressure, Stabilizing Banking System

RBI Injects Rs 1.41 Lakh Crore Liquidity to Counter Market Pressure, Stabilizing Banking System​

The Reserve Bank of India (RBI) on Tuesday injected substantial transient liquidity into the banking system through a seven-day variable rate repo (VRR) auction. This decisive action was taken to manage heightened liquidity pressures observed in recent days within the financial markets.

The central bank infused the funds at a cut-off and weighted average rate of 5.26 per cent, as disclosed by the RBI. The intervention aimed to ensure smooth operations and stable funding conditions across the banking sector.

Addressing Liquidity Deficit and Market Concerns​

The liquidity injection comes amid concerns regarding systemic liquidity strain. Data released indicated that the banking system had experienced a deficit amounting to Rs 19,971.89 crore as of June 22. This is in contrast to a surplus of Rs 30,685.11 crore recorded just one day earlier on June 21.

Experts have pointed to outflows arising from goods and services tax (GST) payments as a primary factor contributing to the tightening of liquidity within the banking sector. These continuous outflows have placed underlying pressure on overnight money market rates.

Overnight Money Market Rates Under Pressure​

The diminished liquidity has consequently put downward pressure on short-term funding markets. The weighted average call money rate was trading at 5.43 per cent, which is noted to be 0.18 per cent above the RBI's repo rate.

Similarly, tri-party repo (TREPS) rates were observed trading marginally higher than the repo rate, specifically 0.05 to 0.07 per cent above it. These metrics reflect the real-time pressure on short-term funding availability in the financial system.

Central Bank's Broader Liquidity Management Strategy​

In recent days, the central bank has been proactively infusing transient liquidity into the banking sector. This continuous action follows previous pressures that arose from advance tax payment outflows impacting institutional liquidity.

To manage these persistent liquidity challenges and maintain control over overnight money market rates, the RBI has injected approximately Rs 2.43 lakh crore through various VRR auctions of different tenures.

Breakdown of Recent Liquidity Infusions​

The RBI's data reveals a targeted deployment strategy across multiple auction periods. The total infusion includes allocations made on several consecutive days.

Notably, the seven-day VRR auction saw an injection of Rs 89,440 crore. This action was conducted during the specific auction held on June 16. Other interventions included Rs 72,300 crore injected via two VRR auctions on Wednesday.

Further details from RBI data include Rs 36,300 crore provided through an overnight VRR on Monday. Earlier injections included Rs 16,750 crore via a three-day VRR auction on Friday and Rs 28,220 crore during an overnight VRR on June 15.