The Reserve Bank of India is stepping up its liquidity support. On a review of current and evolving liquidity conditions in the near term, the bank said it will conduct a variable rate repo auction on Monday, October 26 with a notified amount of 150,000 crore rupees, a tenor of four days and reversal on Friday, October 30. The operation is three times the 50,000 crore notified for Friday’s three-day repo and a day longer.
The escalation answers Friday’s queue. Banks bid 106,949 crore for the three-day operation, more than twice the amount on offer, and the bank allotted 50,003 crore at a cut-off of 5.58 percent and a weighted average rate of 5.60 percent, up from cut-offs of 5.54 percent on Thursday and 5.52 percent on Wednesday. Demand for central bank money has risen through the week at rising prices, and Monday’s larger, longer operation is sized to meet more of that queue rather than ration it at the margin.
The week’s pattern is why the size matters. The Reserve Bank rejected every bid at Wednesday’s treasury bill auction, surplus banks placed 161,742 crore in the standing deposit facility on Thursday while others drew at the marginal standing facility, and Friday’s dated government auction still cleared in full. Cash exists in the system but is unevenly held, and a 150,000 crore four-day repo is the instrument for moving it across banks and across the month-end window. The cut-off rate on Monday will show whether the larger supply relieves the premium banks have been paying to term out their funding.