The Reserve Bank of India allotted 50,007 crore rupees in its overnight variable rate repo auction on Wednesday, against bids of 93,241 crore rupees for a notified amount of 50,000 crore, at a cut-off rate of 5.52 percent and a weighted average rate of 5.52 percent, with 87.99 percent partial allotment at the cut-off. The auction was announced on October 19 after a review of liquidity conditions and reported by this site on Tuesday; its result confirms the demand was nearly double the supply.
The central bank’s money market statement for Tuesday, October 20 explains why both this injection and Wednesday’s treasury bill rejection can happen in the same system. Banks took 29,561 crore rupees overnight at the marginal standing facility at 5.75 percent while parking 146,888 crore in the standing deposit facility at 5.25 percent, leaving net absorption from the day’s operations of 117,327 crore. Outstanding operations still included Monday’s seven day repo of 100,014 crore at 5.51 percent, and net durable liquidity measured on September 30 stood at a surplus of 1,014,401 crore.
Cash reserve balances tell the same two sided story. Scheduled commercial banks held 842,024.88 crore rupees with the central bank on October 20 against an average daily requirement of 833,309 crore for the fortnight ending October 31, a thin aggregate cushion that coexists with large gross flows in both directions because the surplus sits with different banks from those borrowing at the facility.
The sequence matters for Friday. The government will auction 33,000 crore rupees of dated securities on October 23, including a 14,000 crore reissue of the 7.71 percent 2066 bond, two days after the treasury bill auction was rejected in full. A system that bids 93,241 crore for overnight money at 5.52 percent is not short of cash in total; it is rationing where that cash sits, which is what the dated auction will price.