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RBI gets offers for only `2,025 crore in reverse repo auction

LiveMint logoLiveMint 02-06-2014 Joel Rebello

Mumbai: The Reserve Bank of India (RBI) got offers for only `2,025 crore out of the `15,000 crore it offered to suck out of the banking system through the four-day term reverse repo auction conducted on Monday, the central bank said on its website.

RBI accepted all offers from banks at a weighted average rate of 7.96%. Earlier while announcing the auction on Friday the central bank had said that offers above 8% the existing repo rate will be rejected.

Repo rate is the rate at which RBI offers money to banks in exchange for securities.

Mohan Shenoi, treasurer at Kotak Mahindra Bank Ltd, said the reverse repo auction indicates that banks have had other priorities than keep their excess cash with RBI.

“I suspect they must have chosen to repay their export refinancing under which banks receive funding from RBI at 8%. They must have repaid it because they were not sure whether they would get the maximum 8% rate,” Shenoi said.

The central bank also offered to suck out an additional `10,000 crore under the so-called greenshoe option above the notified amount. However, that option was not activated.

Harihar Krishnamoorthy, treasurer at FirstRand Bank Ltd, said RBI’s attempt must be just an advance preparation to suck out liquidity in case dollar inflows increase into the country.

So far in May foreign institutional investors have invested $5.53 billion in the local debt and equity markets, the highest in the calendar year. Inflows into the debt market at $3.27 billion are the highest since December 2011 when $3.90 billion was invested, data from the Securities and Exchange Board of India (SEBI) shows.

“Right now, banks are borrowing through RBI’s daily repo and also the MSF (marginal standing facility) window but if dollar inflows continue, liquidity will only improve,” Krishnamoorthy said, adding that the average overnight call rate is on a downward trajectory at around 8% currency from 8.4% last week.

MSF at 9% is the emergency funding window for banks through which they exchange their excess government securities for cash paying higher than the repo rate.

Liquidity in the banking system is likely to ease as dollar buying from RBI in the foreign exchange market will infuse an equal amount of rupees in the banking system. RBI is buying to prevent the rupee from rising sharply.

On Monday, banks borrowed `14,155 crore from RBI through an overnight repo auction and parked `6,502 crore in a three-day reverse repo auction, according to RBI’s website.

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