Variable rate reverse repo auctions indicate monetary tightening, say analysts

The decision of Reserve Bank India (RBI) to conduct four variable rate reverse repo (VRRR) auctions to absorb excess liquidity from the banking system could be the beginning of its imminent exit from

The decision of Reserve Bank India (RBI) to conduct four variable rate reverse repo (VRRR) auctions to absorb excess liquidity from the banking system could be the beginning of its imminent exit from unconventional monetary easing, said bankers and analysts. “The RBI policy is pragmatic and strikes a fine balance between stance and strategy. While the policy stance continues to be accommodative to continuously support growth, a strategy of careful recalibration of liquidity management is clearly indicated with the roll-out of VRRR,” said State Bank of India Chairman Dinesh Kumar Khara. “The policy has also nudged banks to shift to an alternate reference rate with the discontinuation of LIBOR. The extension of on-tap TLTRO scheme and the deferral of deadline for meeting the operational parameters for stressed entities will help corporates navigate through the pandemic with a degree of certainty,” he added.