The Reserve Bank of India (RBI) will carry out a four-day Variable Rate Reverse Repo (VRRR) auction for a notified amount of Rs 1 lakh crore on Monday. The VRRR is usually used to withdraw excess liquidity from the banking system, which is estimated to be in surplus of around Rs 2.38 lakh crore. Though the central bank conducted a 14-day VRRR auction for Rs 2 lakh crore recently, it received a muted response from banks who parked only Rs 50,868 crore. Dealers attribute this to banks refraining from parking funds for a longer tenure due to the expectation of heavy outflows in the coming days.
The RBI Governor has indicated that the central bank will remain flexible in meeting the productive requirements of the economy through two-way operations. Experts anticipate that the RBI will maintain the policy repo rate at 6.5% in its upcoming June 8 announcement, considering the easing of retail inflation in April and the potential for further decline.
A meeting of the six-member Monetary Policy Committee (MPC) is scheduled for June 6-8, which will be headed by Reserve Bank Governor Shaktikanta Das. Following the last MPC meeting in April, the RBI paused its rate hike cycle and stayed with the 6.5% repo rate as it had cumulatively hiked the repo rate by 250 basis points since May 2022 to contain inflation.
