Scribd Logo
Upload

Welcome to Scribd!

  • RBI May Deploy LTRR To Mop-Up Liqudity With Banks

    Uploaded by

    shriya rajan
    22 views1 page
    RBI is exploring using Long Term Variable Rate Reverse Repo (LTRR) auctions to absorb excess liquidity from banks for longer durations. However, banks are wary of locking funds into longer tenors under LTRR in case credit demand increases, as it would limit their ability to meet demand. Banks prefer investing in short-term treasury bills to maintain flexibility. While RBI aims to gradually reduce liquidity, current surplus liquidity in the banking system is large at an estimated Rs. 7.5-8 lakh crore.

    Original Description:

    Original Title

    RBI may deploy LTRR to mop-up liqudity with banks

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Report this Document
    RBI is exploring using Long Term Variable Rate Reverse Repo (LTRR) auctions to absorb excess liquidity from banks for longer durations. However, banks are wary of locking funds into longer tenors under LTRR in case credit demand increases, as it would limit their ability to meet demand. Banks prefer investing in short-term treasury bills to maintain flexibility. While RBI aims to gradually reduce liquidity, current surplus liquidity in the banking system is large at an estimated Rs. 7.5-8 lakh crore.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as pdf or txt
    22 views1 page

    RBI May Deploy LTRR To Mop-Up Liqudity With Banks

    Uploaded by

    shriya rajan
    RBI is exploring using Long Term Variable Rate Reverse Repo (LTRR) auctions to absorb excess liquidity from banks for longer durations. However, banks are wary of locking funds into longer tenors under LTRR in case credit demand increases, as it would limit their ability to meet demand. Banks prefer investing in short-term treasury bills to maintain flexibility. While RBI aims to gradually reduce liquidity, current surplus liquidity in the banking system is large at an estimated Rs. 7.5-8 lakh crore.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as pdf or txt
    of 1

    RBI may deploy LTRR to mop-up

    excess liquidity with banks


    But lenders wary of locking-in for longer Variable Rate Reverse Repo
    (VRRR) auction held on July
    tenors in case credit demand picks up 30, 2021, the RBI received bids
    to park surplus liquidity ag-
    K RAM KUMAR framework. It has a tenor of gregating to ₹3,67,428 crore
    Mumbai, August 5 over 14 days. against the notified ₹2-lakh
    The Reserve Bank of India However, banks are wary of crore.
    (RBI) is understood to have locking-up liquidity for The central bank accepted
    broached the possibility of longer tenors of, say, a month bids, aggregating ₹2,00,033
    conducting Long Term Vari- or two under LTRR because in crore, with the weighted aver-
    able Rate Reverse Repo (LTRR) case credit demand gains age interest rate that banks
    auctions with banks in the steam, they will have to tap will receive working out to
    Banks prefer investing in
    run-up to the normalisation funding options such as the 3.43 per cent.
    treasury bills
    of its ultra-accommodative central bank’s repo (repur- Radhika Rao, Senior Eco-
    policy. chase agreement) window, for loans. However, if they in- nomist, DBS, observed that
    The central bank is explor- certificate of deposits, among vest in LTRR, this flexibility the RBI’s preference to gradu-
    ing LTRR as an instrument to others, to meet their de- will not be available. ally draw out excess liquidity
    absorb surplus liquidity for a mand. They may even have to That banks are awash with might increase the sizes of
    longer duration from the increase fixed deposit rates. liquidity is underscored by VRRR auctions while reaf-
    banking system at a time the fact that they collectively firming support for the ongo-
    when credit demand is Banks’ preference parked ₹6,53,431 crore with ing Government Securities
    muted, and retail inflation is Banks have indicated to the the RBI’s reverse repo win- Acquisition Program.
    sticky. RBI that they prefer investing dow on August 4, 2021. Banks As per Rao’s assessment,
    LTRR is one of the instru- in treasury bills of 91 days, 182 earn 3.35 per cent interest (re- the impact of a VRRR increase
    ments to manage durable li- days and 364 days duration as verse repo rate) on this might be marginal given the
    quidity under the RBI’s re- the bills can be easily liquid- amount. scale of surplus liquidity (es-
    vised liquidity management ated to fund future demand Further, at the last 14-day timated at ₹7.5-8 lakh crore).

    You might also like