The Reserve Bank of India got a relatively better response to the 3-day Variable Rate Reverse Repo auction it conducted on Tuesday, with banks deploying funds aggregating ₹32,375 crore against the notified amount of ₹75,000 crore.
The funds deployed by banks were about 43 per cent of the notified amount at the weighted average rate of 6.49 per cent.
At the 14-day VRRR auction conducted on June 2, banks placed only about 25 per cent (or ₹50,868 crore) of the notified amount of ₹2 lakh crore.
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The preference to park more funds at the 3-day VRRR auction vis-a-vis 14-day VRRR auction clearly shows that banks are wary of locking up funds for a longer period as the upcoming advance tax flows could create some liquidity mismatches, said Marzban Irani, CIO-Fixed Income, LIC Mutual Fund.
The central bank decided to conduct the 3-day VRRR after a review of the current and evolving liquidity conditions.
The liquidity absorption action by RBI is in keeping with its monetary policy stance of remaining focused on withdrawal of accommodation.
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