On Friday, banks deposited 4.31 trillion rupees of their excess funds with the Reserve Bank of India (RBI) at a threshold of 3.99%, virtually contacting the repo rate, showing that foreign exchange market rates will not fall in a hurry even as the RBI abandons its cash-absorbing mode. The central bank had stunned the bond market by signaling a 5 trillion floating rate rupee (VRRR) sell-off, rather than a normal 8 trillion rupee sell-off, as the economy suffered turmoil due to the continuous thrust from Omicron.
10-year bond yields closed at 6.58%, up 2 basis points from their previous close.
Starting this year, the central bank switched to variable rate reverse auctions, instead of fixed rate auctions. This means that the reverse repo rate of 3.35% is no longer very relevant. Variable rate repo auction thresholds are also moving closer to the repo rate, in line with the central bank’s plan to move towards a policy rate regime in which the rate differential between absorption and the liquidity injection is reduced to just 25 basis points (it is now at 65 basis points).
Meanwhile, the rupiah lost against the dollar and closed above the 74 level. The Indian currency closed at 74.15 per dollar, against its previous close of 73.90.
Summary of news:
- Banks park Rs 4.3 trillion Rs 5 trillion at floating rate at reverse repo close
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